earnings management through transaction structuring contingent convertible debt and diluted earnings per share

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1、DOI:10.1111/j.1475-679x.2005.00168.xJournalofAccountingResearchVol.43No.2May2005PrintedinU.S.A.EarningsManagementthroughTransactionStructuring:ContingentConvertibleDebtandDilutedEarningsperShareCAROLMARQUARDT∗ANDCHRISTINEWIEDMAN†Received1January2004;accepted6December2004ABSTRACTInthisarticleweexa

2、minewhetherfirmsstructuretheirconvertiblebondtransactionstomanagedilutedearningspershare(EPS).Wefindthatthelikelihoodoffirmsissuingcontingentconvertiblebonds(COCOs),whichareoftenexcludedfromdilutedEPScalculationsunderStatementofFinancialAccountingStandard(SFAS)128,issignificantlyassociatedwiththeredu

3、ctionthatwouldoccurindilutedEPSifthebondsweretraditionallystructured.Wealsodocumentthatfirms’useofEPS-basedcompensationcontractssignifi-cantlyaffectsthelikelihoodofCOCOissuanceandfindweakevidencethatreputationcosts,measuredusingearningsrestatementdata,playaroleinthestructuringdecision.Theseresultsar

4、erobusttocontrollingforalternative∗NewYorkUniversity;†UniversityofWesternOntario.WethankRaviArcot,CEOofKynexInc.,forprovidingconvertiblebonddata,andNedBlanchardoftheOfficeoftheAssociateChiefCounsel(FinancialInstitutionsandProducts)oftheInternalRevenueServicefordis-cussionsregardingthetaxtreatmento

5、fcontingentpaymentdebtinstruments.WealsothankJohnGrahamforprovidingdataonmarginaltaxrates.Weappreciatecommentsandsugges-tionsbyDanielBens,PhilipBerger(editor),SanjeevBhojraj,PeggyBishop,MaryEllenCarter,TedChristensen,TomDyckman,FabrizioFerri,Ole-KristianHope,MarkHuson,CharlesLee,ZachLiu,KinLo,Suz

6、anneMorsfield,MarkNelson,JohnPhillips,ChristineTan,KarenTeitel,SteveUmlauf,TeriYohn,ananonymousreferee,andworkshopparticipantsattheUniversityofConnecticut,CornellUniversity,theFourthAnnualUniversityofUtahWinterConference,the2004JournalofAccountingResearchConference,andthe2004AmericanAccountingAsso

7、ciationAnnualMeeting.205CopyrightC,UniversityofChicagoonbehalfoftheInstituteofProfessionalAccounting,2005206C.MARQUARDTANDC.WIEDMANmotivationsforissuingCOCOs,includingtaxanddilutionarguments.Inad-dition,anexaminationo