 Earnings quality in ex‐post failed firmsJuan García Lara, Beatriz Osma and Evi Neophytou Accounting and Business Research, 2009, vol. 39, issue 2, 119-138 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. Date: 2009 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:acctbr:v:39:y:2009:i:2:p:119-138 Ordering information: This journal article can be ordered from DOI: 10.1080/00014788.2009.9663353 Access Statistics for this article Accounting and Business Research is currently edited by Vivien Beattie More articles in Accounting and Business Research from Taylor & Francis Journals |
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