Malikov, Kamran and Coakley, Jerry and Manson, Stuart (2019) The effect of the interest coverage covenants on classification shifting of revenues. The European Journal of Finance, 25 (16). pp. 1572-1590. DOI https://doi.org/10.1080/1351847X.2019.1618888
Malikov, Kamran and Coakley, Jerry and Manson, Stuart (2019) The effect of the interest coverage covenants on classification shifting of revenues. The European Journal of Finance, 25 (16). pp. 1572-1590. DOI https://doi.org/10.1080/1351847X.2019.1618888
Malikov, Kamran and Coakley, Jerry and Manson, Stuart (2019) The effect of the interest coverage covenants on classification shifting of revenues. The European Journal of Finance, 25 (16). pp. 1572-1590. DOI https://doi.org/10.1080/1351847X.2019.1618888
Abstract
While prior studies focus on real/accrual-based earnings management and expense misclassification to investigate earnings manipulation in avoiding covenant violations, this paper extends such research in a new direction. In particular, it examines whether firms employ classification shifting of revenues when they are subject to interest coverage EBITDA-based covenants close to their threshold values or limits. This earnings management tool allows firms to increase reported EBITDA by misclassifying non-operating revenues as operating revenues to remain within covenant limits that include EBITDA. Using a sample of 559 UK listed firm-years for the period 2005-2014, it establishes that the use of classification shifting of revenues is high when interest coverage covenants are close to their limits. Further analysis suggests that firms also employ revenue shifting when all their loan covenants are EBITDA-related.
Item Type: | Article |
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Uncontrolled Keywords: | Classification shifting of revenues, interest coverage covenant, debt covenant violations |
Subjects: | H Social Sciences > HG Finance |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Essex Business School |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 23 May 2019 09:45 |
Last Modified: | 30 Oct 2024 17:01 |
URI: | http://repository.essex.ac.uk/id/eprint/24581 |
Available files
Filename: EJF Final Version.pdf