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The impact of variable structure changes on earnings management
Yi Pei Liu,
Doctoral Student Department Of Accounting National Taipei University Taiwan
Yu Shu Cheng, Doctoral Student Major In Accounting Graduate School Of Management National Yunlin University Of Science And Technology Taiwan
ABSTRACT. Numerous studies have examined that there is a simple linearity between the relationship debt ratio and earnings management while not considering the structural change. After considering the structural change, for instance firm’s debt structure changed, they are not a simple linearity instead of a non-linear relationship. This paper applies piecewise in variable method to test the threshold effect of debt ratio on earnings management empirically. The relationship between debt ratio and earnings management generates an increasingly progressive impact with higher speed while debt ratio exceeds threshold values. Empirical results indicate that when firm’s debt ratio is at 46.79% and 62.17%, firm’s debt structure will be changed, then promote the different changes of earnings management. This paper can offer to investors and authority concerned a good index of understanding extent of earnings management under different debt structure changes.
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