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    The Effect of Technical Default Cost on Discretionary Accounting Decisions

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    Technical Default-16Aug2014-1.pdf (378.6Kb)
    Issue Date
    2014-08-16
    Author
    HassabElnaby, Hassas R.
    Mosebach, Janet
    Mosebach, Michael
    Whisenant, Scott
    Publisher
    Kaizen Publications
    Type
    Article
    Article Version
    Scholarly/refereed, author accepted manuscript
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    Abstract
    This study investigates whether the variation in the expected costs of technical default leads managers to manipulate earnings in periods prior to, as well as in, the year in which avoidance of technical default becomes unlikely. We argue that managers have private information about the expected costs and consequences of default and, prior to default, condition their decisions about accounting choice and discretion on these expectations. We provide evidence on the endogeneity of two forms of discretion in accounting choices in the context of testing the debt covenant hypothesis. We document that both forms of earnings management are associated with a lower cost of technical default. Our findings also suggest earnings management is less likely when the expected cost of technical default is low, and such decisions are associated with a lower default cost for firms that actually enter technical default.
    Description
    This is the author's final draft. Copyright 2014 Kaizen Publications.
    URI
    http://hdl.handle.net/1808/18513
    Collections
    • School of Business Scholarly Works [213]
    Citation
    Hassabelnaby, Hassan R., Michael Mosebach, and Scott Whisenant. "The Effect of Technical Default Cost on Discretionary Accounting Decisions." SSRN Electronic Journal SSRN Journal (n.d.): pag 1-37. DOI:

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    Contact KU ScholarWorks
    785-864-8983
    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    785-864-8983

    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    Image Credits
     

     

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