Do differences in financial reporting attributes impair the predictive ability of financial ratios for bankruptcy?

William H. Beaver (), Maria Correia () and Maureen F. McNichols ()
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William H. Beaver: Stanford University
Maria Correia: London Business School
Maureen F. McNichols: Stanford University

Review of Accounting Studies, 2012, vol. 17, issue 4, No 8, 969-1010

Abstract: Abstract This study explores the effect of cross-sectional and time-series differences in financial reporting attributes on the predictive ability of financial ratios for bankruptcy. We identify proxies for discretion over financial reporting, the importance of intangible assets, the comprehensiveness of the accounting model and recognition of losses. Each of our proxies for financial reporting attributes is associated with financial ratios that are less informative in predicting bankruptcy. Furthermore, our time-series tests reveal a decline in the predictive ability of financial ratios for bankruptcy and document that this decline is associated with our measures of financial reporting attributes.

Keywords: Bankruptcy; Accounting information; Financial ratios (search for similar items in EconPapers)
JEL-codes: C41 G14 G33 M41 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11142-012-9186-7

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