Earning Management and Debt Ownership Structure in Spanish Firms

Abstract

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the aim of this paper is to analyze the efficiency of debt ownership as a mechanism of corporate governance in reducing the discretionary behavior of managers. We use earnings management and discretionary accruals as indicators of managerial accounting discretion. Our results show that corporate debt has a prominent impact on reducing earnings management. Banking debt can foster the discretionary behavior of managers whereas public debt plays no relevant role. At the same time we test the complementary effect of some other mechanisms of corporate governance such as capital structure and ownership concentration.