This paper examines the effect of earnings management on financial leverage and how this relation is influenced by institutional environments by employing a large panel of 25,798 firms across 37 countries spanning the years 1989 to 2009. We find that firms with high earnings management...

Using a large sample of firms from 43 markets, we find significant time-series variations in firms’ leverage ratios around the world. Industry median leverage ratios and aggregate leverage ratios also change substantially over time. Relative to actual leverage ratios, target leverage ratios...