RT Journal Article
T1 Earnings quality in ex-post failed firms
A1 García-Lara, Juan M.
A1 García Osma, Beatriz
A1 Neophytou, Evi
AB 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 achievedin two ways: (1) through accounting (accruals) manipulation; and (2) by implementing real operating actions thatdeviate 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 conservatismto better governance and positive economic outcomes. Our results show that conditional conservatismdecreases substantially in the years prior to failure. Finally, we show that accruals manipulation is more pronouncedin ex-post bankrupt firms with low ex-ante probability of failure, and that ex-post bankrupt firms with high ex-antefailure probability, having likely exhausted the opportunities for accrual manipulation, manipulate real operationsmore aggressively
PB Taylor & Francis
SN 0001-4788
YR 2011
FD 2011-01-04
LK https://hdl.handle.net/10016/12413
UL https://hdl.handle.net/10016/12413
LA eng
NO EuropeanCommission INTACCT Research Training Network (MRTNCT-2006-035850), and the Spanish Ministry of Scienceand Innovation (ECO2008-0638/ECON and SEJ2007-67582/ECON and SEJ2005-08644/ECO)
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RD 27 jul. 2024