Earnings Management before Bankruptcy: A Review of the Literature

Dutzi, Andreas; Rausch, Bastian

doi:10.5171/2016.245891

Cited by 21 publications

(20 citation statements)

References 28 publications

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“…Earnings management behaviors in distressed firms, in the period before bankruptcy, are still ambiguous. The unclear directions (i.e., upward and downward) of earnings management are found in prior research (Dutzi & Rausch, 2016).…”

Section: Introductionmentioning

confidence: 77%

“…In this study, new empirical evidence of REM in bankrupt firms, before bankruptcy, can shed some light on the identifying REM. Bankrupt firms provide a unique setting in which to study REM, as limited financial flexibility may push managers to aggressively manipulate earnings (Dutzi & Rausch, 2016; García Lara et al., 2009).…”

Section: Introductionmentioning

confidence: 99%

“…Once the court confirms the bankruptcy of a failing firm, the stocks of those bankrupt firms become worthless (Kadapakkam & Zhang, 2014). Thus, detecting earnings management and decrypting the real financial condition of a firm is essential for stockholders to avoid immense investment losses (Dutzi & Rausch, 2016). Prior literature suggests that, when firms are under financial distress, managers tend to manipulate earnings more aggressively (García Lara et al., 2009).…”

Section: Introductionmentioning

confidence: 99%

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Real earnings management in bankrupt firms

Zhang

Hao

et al. 2021

J Corp Accounting Finance

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We investigate: (1) whether managers in bankrupt firms manipulate earnings through real earnings management (REM); (2) the incentives and tradeoff strategies to engage in REM; (3) how REM influences the subsequent firm performance and bankruptcy probability. We find that bankrupt firms are more likely to manipulate earnings via REM than continuous firms. There is an increasing trend of REM activities in the 5‐year window before bankruptcy. The major incentive for bankrupt firms to engage in REM is the issuance of new debt. Bankrupt firms treat REM and accrual‐based earnings management (AEM) as complementary tools for earnings management. We further find that REM is associated with low future firm performance. The REM score defined in this study can more accurately predict bankruptcy than the Altman Z score by 15%. Overall, the findings in this paper will help investors, regulators, and academics identify REM activities and understand the incentives and consequences of REM.

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Section: Introductionmentioning

confidence: 77%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Real earnings management in bankrupt firms

Zhang

Hao

et al. 2021

J Corp Accounting Finance

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“…They found that firms in financial distress manage earnings considerably more than companies that are not experiencing financial distress. (Dutzi A, Rausch B., 2016) reviewed the existing literature and found that accounting behavior in businesses experiencing problems in the period before failure is ambiguous. (Nagar Neerav, Sen Kaustav., 2016) examine Indian firms' earnings management strategy, which is related to the severity and extent of the economic downturn, and say that the managers of the companies in distress are managing profits in order to cover the unfavorable performance and to obtain more liquidity from the banks, or for their personal benefit.…”

Section: Literature Reviewmentioning

confidence: 99%

Detecting Creative Accounting in Businesses in Financial Distress

Arnis¹,

Karamanis²,

Kolias³

2019

AFR

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This paper investigates whether the management of firms in financial distress applies creative accounting techniques in order to fine-tune the elements of their financial statements. For this purpose, the financial statements of 385 Greek bankrupt firms of the trade and manufacturing sectors for the period 2003 to 2014 were analyzed. The sample was divided into two sub periods; in the period before the financial crisis, that is from 2003 to 2008, and the period 2009 to 2014 during which the Greek economy was in crisis and recession. By applying factor analysis, five financial ratios were selected, which formed the independent variables in a Discriminant Analysis (MDA) and Logit models in order to find those firms which, while they were bankrupt they were classified in the last period of their operation as healthy (type I error).By selecting these firms (common to both models), their accounting data for the last two years before they went bankrupt have been investigated in order to determine whether they have been affected by the application of creative accounting methods. The results showed that the management of some of the selected firms applied creative accounting techniques during the last year of operation before their bankruptcy, which led to the manipulation and falsification of the published financial statements during the period before the financial crisis. However, this is not the case for the period 2009 to 2014, because the economic crisis affects the behavior of managers in applying creative accounting, which is owing to the changes in market rules.

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“…Por último, algunas investigaciones muestran que las empresas llevan a cabo la gestión de resultados como consecuencia de las crisis financieras con el objetivo de solucionar la situación financiera de la empresa (Chia et al 2007;Dutzi y Rausch, 2016;Lisboa, 2016). En estudios a Eng et al (2018) encuentran mayor earning management en épocas de crisis como en China y Estados Unidos.…”

Section: Revisión De La Literaturaunclassified

¿Son las prácticas de gobierno corporativo y de earnings management relevantes para el valor de las empresas en México?

Aguilar

García

Alejandro

2019

CyA

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En esta investigación se analiza si el gobierno corporativo y el earning management tienen impacto en el valor de las empresas en México. El estudio se realizó durante el periodo del 2008 al 2015 utilizando una muestra de 52 empresas que cotizan en la Bolsa Mexicana de Valores, la metodología empleada fue el método de cuantiles. Nuestros resultados muestran que existe un impacto negativo del earning management sobre empresas medianas y pequeñas considerando la Q de Tobin, lo que indica una perspectiva oportunista de la gestión de resultados. Mientras que el impacto del gobierno corporativo solo se presenta en empresas de tamaño medio y grande. Con relación al impacto sectorial se observa que para los percentiles 25th y 50th el sector industrial, consumo frecuente y telecomunicaciones tienen más impacto sobre la Q de Tobin que el sector de materiales mientras que el sector salud tiene mayor impacto que materiales sobre el valor de la empresa en todos los percentiles.

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Earnings Management before Bankruptcy: A Review of the Literature

Cited by 21 publications

References 28 publications

Real earnings management in bankrupt firms

Real earnings management in bankrupt firms

Detecting Creative Accounting in Businesses in Financial Distress

¿Son las prácticas de gobierno corporativo y de earnings management relevantes para el valor de las empresas en México?

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