2026-09-19T14:24:04Zhttps://dspace.mit.edu/server/oai/requestoai:dspace.mit.edu:1721.1/822912022-01-13T07:54:52Zcom_1721.1_7582com_1721.1_7581col_1721.1_131022
Michelle Hanlon.
Lemayian, Zawadi Rehema
Sloan School of Management.
Sloan School of Management
2013-11-18T19:04:51Z
2013-11-18T19:04:51Z
2013
2013
http://hdl.handle.net/1721.1/82291
861338477
Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2013.
Cataloged from PDF version of thesis.
Includes bibliographical references (p. 42-43).
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.
by Zawadi Rehema Lemayian.
Ph.D.
64 p.
eng
Massachusetts Institute of Technology
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http://dspace.mit.edu/handle/1721.1/7582
Sloan School of Management.
Corporate bond repurchases and earnings management
Thesis
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Publication
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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.</Abstract>
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