Special Purpose Vehicles: Empirical Evidence on Determinants and Earnings Management
Accounting Review, Vol. 84, No. 6, 2009
AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Paper
44 Pages Posted: 18 Sep 2006 Last revised: 5 Oct 2010
Date Written: November 1, 2009
Abstract
We investigate the use, determinants, and earnings effects of special purpose vehicles (SPVs). Based on a proxy of SPV activity that can be applied to a broad cross-section of firms over time, we find a two-and-a-half fold monotonic increase in the percentage of firms using at least one SPV during the eight-year period from 1997 through 2004. Tobit regressions of the determinants of SPV use show that SPV activity increases with financial reporting incentives and economic and tax motivations, but strong corporate governance tends to mitigate their use. In addition, the evidence is consistent with SPVs arranged for financial reporting purposes being associated with earnings management, whereas the same does not appear to be the case for SPVs set up mainly for economic, tax, and other reasons.
Keywords: Special purpose vehicles, off-balance sheet entities, earnings management, taxes, corporate governance
JEL Classification: M41, G35
Suggested Citation: Suggested Citation
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