부채를 통한 자본조달과 재무분석가의 이익예측치 미달회피 경향

Abstract

Stock investors tend to pay greater attention to the firms which relatively prefer to raise capital through equity financing (i.e., issuing new shares). In addition, the amount of cash that inflows to the firms are greatly influenced by the stock price of the firms when the firm issues and sells new shares. As a result, the firm could have stronger incentives to manipulate earnings to maintain or increase stock price by satisfying investors. In contrast, firms which prefer debt financing (i.e., issuing bonds or receiving long-term bank loans) relatively pay less attention to stock price because the stock price, on normal situation, is not directly related to the condition of debt financing, except an extreme case when the firm is in danger of survival. Thus, these firms have less incentives to manipulate earnings to influence on the stock price. In this study, we examine the association between firms' tendency to meet or beat analysts' consensus earnings forecasts and the firms' preference to debt financing. Prior studies mostly use the magnitude of discretionary accruals as a proxy for the firms' earnings management. However, it is well known that the discretionary accruals are prone to serious measurement errors. In a seminal study, Burgstahler and Dichev(1997) and Degeorge. Patel, and Zeckhauser(1999) report that firms tend to report earnings which avoid (1) negative earnings, (2) negative earnings changes, and (3) negative earnings surprises. The negative earnings surprise implies that the firms' reported earnings exceed the consensus of analysts' concurrent earnings forecasts. These threes are the benchmarks that firms would like to meet or beat. If firms fail to meet these benchmarks, the stock price drops significantly, whereas the stock prices get extra premiums when the firms meet or beat the benchmarks. Burgstahler and Dichev(1997) and Degeorge, Patel, and Zeckhauser(1999) report the kinks in the distributions of earnings, earnings changes, and analysts' forecast errors. These findings suggest that firms manage earnings to meet or beat the benchmarks. Among the three benchmarks, studies found that the last benchmark - the tendency to avoid negative earnings surprises - is the most important benchmark. Thus, we use this benchmark and examines if the firm's tendency to meet or beat the benchmark and the firm's tendency to prefer debt financing. This study uses 1,771 firm-year observations collected from Korean stock market over 2001-2005 period and empirically test this relationship. The samples used in this study are the non-financial industry firm-year observations that have all the necessary financial and stock price data. The financial data are retrieved from KIS-VALUE database and the stock price data are retrieved from Fn-DataGuidePro database. The degree of relative preference for debt financing over equity financing is measured by two different proxies: the amount of financial debt divided by total assets and the amount of long-term financial debt change during the period divided by total assets. To examine the relationship, we use logit analysis method using the tendency to meet or beat the consensus of analysts' annual earnings forecasts as a dependent variable and the degree of preference for the debt financing as a variable of interests. In addition, we include various control variables identified in prior studies to solve potential correlated omitted variable problems. The selected control variables are firm size, dispersion of analysts' forecasts, an indicator variable for the choice of large auditor, the growth rate of total assets, the number of analysts following the firm, loss dummy, net operating assets, and the annual earnings change. The empirical results confirm the prediction. First, we find that the firms which prefer debt financing are less likely to meet or beat the consensus of the analysts' annual earnings forecasts. Both proxy for the preference for debt financing - the debt ratio and the amount of debt issuance in the current year - yield qualitatively similar results. Second, the frequency to meet or just beat the consensus also decreases for these firms, compared with the frequency to fail to meet or far exceed the benchmark. Third, the results are generally hold when we control for the other two benchmarks in the analyses. We only find that the documented tendency disappears when firms report net losses, i.e., when firs suffer financial difficulties. It is because firms have incentive to inflate earnings when firms have financial difficulties. Finally, after controlling for the degree of equity financing, the empirical findings still hold. It implies that the preferences for debt financing and equity financing are neither mutually exclusive nor collectively exhaustive. Thus, the findings in this study has incremental contributions over the findings in the prior studies that report the firms' tendency to raise equity capital and the firm's tendency to meet or beat analysts' consensus earnings forecasts. In summary, these findings are very interesting and provide regulators, academics, practitioners, creditors, and investors with valuable insights into firms' and managers's incentives to manage earnings to avoid negative earnings surprise.