Earnings management, business strategy, and bankruptcy risk: evidence from Indonesia

Abstract

The purpose of this study is to examine the effect of accrual earnings management and business strategy to bankruptcy risk. Multiple Least Square (MLS) regression and robust regression of M-Estimator regression are performed on financial data of 1,068 non-financial firms listed on the Indonesia Stock Exchange (IDX). The result indicates that there is no relationship between earnings management and bankruptcy risk, while firms that implement either one of two generic business strategies of cost leadership or differentiation, significantly mitigate the risk of bankruptcy. The effect of earnings management to bankruptcy risk is essential for external stakeholders, such as investors and creditors, to assess bankruptcy risk, financial capability, and credit worthiness of a firm, while business strategy effect on bankruptcy risk benefits internal stakeholders, such as managers, in formulating strategies to deal with going concern issues.

The effect of fair valuation on banks' earnings quality: empirical evidence from developed and emerging European countries

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Optimization for Risk Decision-Making Through Simulated Annealing

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Board Structure of Corporate Organizations and Earnings Management: Does Size and Independence of Corporate Boards Matter for Nigerian Firms?

“…Although, while we expect that each company's Board of Directors would continue to develop strategic policies and monitor the overall activities of management (Burghleh & Al-Okdeh, 2020), the fact that corporate managers may still act for personal gains rather than in the interest of shareholders cannot be completely ruled out. In fact, studies had pointed that managers may sometimes be involved in opportunistic actions such as the deliberate alteration of financial statements' contents possibly to conceal the actual economic conditions of companies for private gains or other purposes (Muramiya & Takada, 2017;Lacina, Lee & Kim, 2018;Agustia, Muhammad & Permatasari, 2020;Sianturia, Wahyudi, Pangestuti & Utomo, 2020). Such action of management which may influence contractual outcomes or mislead interested parties as a result of the distortions in the reported earnings of companies, best describes the concept of earnings management (Ubesie, Ogbu & Mbah, 2019;Dao & Ngo, 2020).…”