The Impact of Earnings Management on Capital Structure: A Case Study of Saudi Telecom Company (STC)

Abstract

This research aimed to examine the impact of earnings management on capital structure, using a case study of the Saudi Telecom Company (STC). The research adopted a descriptive analytical methodology for data collection and analysis. It relied on a time series dataset covering the period from 2008 to 2023. Earnings management was measured through two dimensions: operating cash flows and accruals, while capital structure was assessed using financial leverage. Control variables such as company size and firm age were also included. The findings revealed a weak and statistically insignificant relationship between earnings management (whether through operating cash flows or accruals) and the capital structure of STC. This indicates that earnings management practices were not a decisive factor in determining the pattern or level of the company’s financial leverage during the study period (2008-2023), The study recommended that STC adopt more accurate financial analysis tools to assess the extent to which earnings management practices influence financing decisions, especially during periods of expansion or when issuing new financing instruments. The company should also maintain a balance between internal and external financing sources, as it currently relies heavily on external financing. Furthermore, the research emphasized the need for STC's management to review its accounting policies, as the data revealed significantly negative accruals in some years, indicating intensive earnings management practices.