Financing Decisions and Discretionary Accruals: Managerial Manipulation or Managerial
Overoptimism

Dalia Marciukaityte; Samuel H. Szewczyk

doi:10.1108/19405979201100005

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Review of Behavioral Finance

ISSN: 1940-5979

Online from: 2009

Subject Area: Accounting and Finance

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Financing Decisions and Discretionary Accruals: Managerial Manipulation or Managerial Overoptimism

Document Information:
Title:	Financing Decisions and Discretionary Accruals: Managerial Manipulation or Managerial Overoptimism
Author(s):	Dalia Marciukaityte, (Illinois State University, Normal, IL, USA), Samuel H. Szewczyk, (Drexel University, Philadelphia, PA, USA)
Citation:	Dalia Marciukaityte, Samuel H. Szewczyk, (2011) "Financing Decisions and Discretionary Accruals: Managerial Manipulation or Managerial Overoptimism", Review of Behavioral Finance, Vol. 3 Iss: 2, pp.91 - 114
Keywords:	Debt financing, Discretionary accruals, Earnings manipulation, Equity financing, Managerial overoptimism
Article type:	General review
DOI:	10.1108/19405979201100005 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Abstract:	We examine whether discretionary accruals of firms obtaining substantial external financing can be explained by managerial manipulation or managerial overoptimism. Insider trading patterns and press releases around equity and debt financing suggest that managers are more optimistic about their firms around debt financing. Consistent with earlier studies, we find that discretionary current accruals peak when firms obtain equity financing. However, we also find that discretionary accruals peak when firms obtain debt financing. Moreover, discretionary accruals are higher for firms that rely on debt rather than on equity financing. The results are robust to controlling for firm characteristics, excluding small and distressed firms, and using alternative measures of discretionary accruals. These findings support the hypothesis that managerial overoptimism distorts financial statements of firms obtaining external financing.