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To cheat or not to cheat : how bank debt influences the decision to misreport by Brooke W. Stanley and Vikram Sharma

By: Contributor(s): Material type: TextTextSeries: The Vincent C. Ross Institute of Accounting Research ; Volume 26, number 2,Thousand Oaks, CA: Sage Publications; 2011Content type:
  • text
Media type:
  • unmediated
Carrier type:
  • volume
Subject(s): Online resources: Summary: Two different bodies of literature suggest contradictory relations between the likelihood that a firm misreports its financial statement and the use of debt in its capital structure. We test these relations using three different measures of misreporting and find that the results differ depending upon the materiality of misreporting. For relatively less (more) material misreporting, we find the likelihood of misreporting is positively related (unrelated) to bank borrowing. These results suggest that bank monitoring is insufficient to deter or detect misreporting and that bank debt may even provide incentives for managers to misreport, consistent with the “debt covenant hypothesis.”
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Holdings
Item type Current library Call number Vol info Copy number Status Notes Date due Barcode
Journal Article Journal Article Main Library - Special Collections HF5601 JOU (Browse shelf(Opens below)) Vol. 26, no. 2 (pages 383 - 414) SP9786 Not for loan For in-house use only

Two different bodies of literature suggest contradictory relations between the likelihood that a firm misreports its financial statement and the use of debt in its capital structure. We test these relations using three different measures of misreporting and find that the results differ depending upon the materiality of misreporting. For relatively less (more) material misreporting, we find the likelihood of misreporting is positively related (unrelated) to bank borrowing. These results suggest that bank monitoring is insufficient to deter or detect misreporting and that bank debt may even provide incentives for managers to misreport, consistent with the “debt covenant hypothesis.”

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