A Review of the Impact of “High Deposits and High Loans” on Earnings Management from the Perspectives of Financing Constraints and Equity Financing Dependence

Abstract

In recent years, abnormal financial behaviors of enterprises with “high deposits and high debts” have occurred frequently in the capital market, damaging the transparency of accounting information and the credibility of the accounting industry. “High deposits and high debts” refers to the phenomenon where enterprises have both high deposits and high debts, and it often intertwines with the profit management motives of the management. This paper, from the dual perspectives of financing constraints and equity financing dependence, systematically reviews domestic and foreign literature, clarifies the formation mechanism of “high deposits and high debts” and the cutting-edge theories of profit management, and deeply analyzes its transmission mechanism. The research shows that financing constraints and equity financing dependence are the two core paths driving “high deposits and high debts” enterprises to implement profit management: the former forces enterprises to conceal financial crises to obtain financing, and the latter drives enterprises to conform to market expectations to promote refinancing. The case of Dongfang Group, etc., also validates this mechanism. Finally, this paper points out the shortcomings of existing research and proposes future directions. This study not only enriches the theoretical system of financial anomalies and profit management, but also provides practical references for investors to identify risks, regulatory authorities to formulate prevention strategies, and enterprises to optimize capital allocation.