The purpose of
this paper is to investigate the effects of real earnings management on firm
borrowing cost of public-listed in Taiwanese manufacturing industry during 2010
to 2017, and also examines the moderating effect of the directors’ and
officers’ liability insurance (D&O insurance) on real earnings management and
borrowing costs. The empirical results show that borrowing cost is positively
related to real earning management but negatively related to D&O insurance
purchase. Therefore, the firms with D&O insurance than those without have lower
borrowing costs, but the higher the D&O insurance amount, the higher the
borrowing costs. Furthermore, D&O insurance has a moderating effect between
the real earnings management and borrowing costs. Our findings suggest the relationship between D&O insurance and real earning
management, which through the D&O insurance purchasing decision to impact
on corporate borrowing costs.
JEL classification numbers: G22,
Real earnings management, Directors’ and officers'
Borrowing costs, Moderating effect.