Earnings management has emerged as one of the most debated practices in corporate finance and accounting, raising critical questions about its impact on market participants and financial intermediaries. By manipulating accruals or altering real activities, firms often present a distorted picture of their financial health, which directly influences stakeholders who rely on credible information for decision-making. Among the most affected are credit rating agencies and lending institutions, whose evaluations serve as crucial determinants of a firm’s access to capital and the cost of borrowing. This paper critically examines the nexus between earnings management, credit ratings, and lending decisions. Drawing on global and Indian evidence, the study explores how earnings manipulation can lead to inflated ratings, mispriced loans, and heightened default risks, while also analyzing high-profile corporate scandals that exposed systemic weaknesses in regulatory and monitoring frameworks. A balanced perspective is adopted by assessing whether certain earnings management practices are merely opportunistic or can sometimes serve as strategic tools for signaling firm performance. The paper also highlights regulatory responses, including the roles of SEBI, RBI, and international standard setters, and discusses how advancements in forensic accounting and artificial intelligence are reshaping detection mechanisms. By offering a comprehensive and critical analysis, this study contributes to understanding how earnings management undermines the credibility of credit assessments and lending practices, while suggesting pathways for more transparent and resilient financial systems.
