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Corporate bond repurchases and earnings management

Author(s)
Lemayian, Zawadi Rehema
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Other Contributors
Sloan School of Management.
Advisor
Michelle Hanlon.
Terms of use
M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission. http://dspace.mit.edu/handle/1721.1/7582
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Abstract
This paper investigates whether earnings management incentives are associated with gains/losses recognized when firms repurchase bonds. The research question is motivated by the inclusion of these gains/losses in firms' income, which creates the potential to use them to manage earnings. Using a sample of 778 bond repurchases from 1994 to 2011, I find that firms record larger extinguishment gains when earnings are (i) short of analysts' forecasts, or (ii) low relative to the prior year's earnings. Furthermore, the effect is more pronounced after the introduction of SFAS 145 which moved gains/losses from the extinguishment of debt from extraordinary items to operating income. In addition, the result is weaker after SFAS 159 which allowed firms to report liabilities at fair value, thus causing smaller gains to be recorded upon repurchase of debt. This study contributes to the literature on earnings management by providing evidence of real earnings management through bond repurchases and to the literature on bond buybacks by identifying accounting incentives as a determinant of the size of extinguishment gains.
Description
Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2013.
 
Cataloged from PDF version of thesis.
 
Includes bibliographical references (p. 42-43).
 
Date issued
2013
URI
http://hdl.handle.net/1721.1/82291
Department
Sloan School of Management.
Publisher
Massachusetts Institute of Technology
Keywords
Sloan School of Management.

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  • Management - Ph.D. / Sc.D.
  • Management - Ph.D. / Sc.D.

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