رابطه بین فعالیت های مالی خارجی و مدیریت درآمد: مدیریت ریسک سازمانی The Relationship between External Financing Activities and Earnings Management: Evidence from Enterprise Risk Management

1. Introduction This paper examines the relationship between external financing activities and earnings management within the setting of a firm’s internal control environment as measured by Enterprise Risk Management (hereafter, ERM).1 Firms can obtain external financing through equity or debt offerings, and capital structure theory emphasizes the importance of distinguishing between equity and debt financing.2 From a capital cost perspective, debt financing necessitates the payment of interest and matured principal, but there is no such payment pressure in equity financing. However, firms employing equity financing face performance pressures because poor operational performance will result in a reduced stock price. From an agency theory perspective incorporating control rights, debt financing maintains the current proportion of control rights whereas equity financing reduces the monitoring ability of creditors.3 Prior studies find that the use of external financing can drive firm managers to engage in earnings management (Teoh et al., 1998; Shivakumar, 2000; DuCharme et al., 2004; Shu and Chiang, 2014; Yang et al., 2016). These studies focus on accrual-based earnings management and its consequences for post-financing firm performance. For example, Yang et al. (2016) show that firms with higher levels of earnings management and distress risk perform poorly after SEOs. Recent research also documents external financing anomalies, which manifest as negative effects on future stock returns and profitability from a firm’s external financing activities (Bradshaw et al., 2006; Papanastasopoulos et al., 2011). Most studies that attempt to detect such external anomalies are based on direct inferences of possible phenomena or hypotheses from the perspective of the impact of outside investors on the change in expected returns. The earnings management hypothesis contributes significantly to the explanation of external anomalies. It argues that managers will manipulate earnings upward before implementing financing policies, and external investors will mistakenly believe that the firm has better operating performance as a consequence. Once the financing policies are in place, the firm’s performance may deteriorate due to the reversal of earnings management accruals, thus forcing investors to reevaluate the true value of the firm. This effect ultimately yields negative investment returns (Papanastasopoulos et al., 2011).