Earnings quality in ex‐post failed firms
By Juan Manuel García Lara, Beatriz García Osma, Evi Neophytou. 2009
126 citations recorded by the source corpus.
Abstract This paper analyses earnings quality in ex‐post failed firms. Using a large sample of UK bankrupt firms, we find that failed firms manage earnings upwards in the four years prior to failure. This manipulation is achieved in two ways: (1) through accounting (accruals) manipulation; and (2) by implementing real operating actions that deviate from normal practice. We show that these two types of manipulation lead to reduced earnings reliability. We use conditional conservatism as a proxy for reliability, as prior literature links conditional accounting conservatism to better governance and positive economic outcomes. Our results show that conditional conservatism decreases substantially in the years prior to failure. Finally, we show that accruals manipulation is more pronounced in ex‐post bankrupt firms with low ex‐ante probability of failure, and that ex‐post bankrupt firms with high ex‐ante failure probability, having likely exhausted the opportunities for accrual manipulation, manipulate real operations more aggressively.
Subfields: Accounting, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/2761fc871d6259453d7e45f0a3ae33678117a4b6
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Citations in the corpus
- Real and accrual earnings management and IPO failure risk (2015, result): “Further, the definition of failure is consistent with Garcı́a Lara et al. (2009) who examined earnings quality for failed firms in the UK and defined failure as those firm delisted for administration, liquidation and receivership.”