Earnings management indicators as predictors of bankruptcy in Spanish companies

Martha Bernate-Valbuena and Begoña Gutiérrez Nieto ()
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Martha Bernate-Valbuena: 1Department of Economy, Accounting and Finance, University of Monterrey, México
Begoña Gutiérrez Nieto: 2Department of Accounting and Finance, Universidad de Zaragoza, Spain, School of Economics and Business

Documentos de Trabajo from Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza

Abstract: This study examines whether earnings management indicators, which highlight unjustified variations in accounting items, can predict business bankruptcy. Using data from 179,559 Spanish firms, from 2009 to 2014, both traditional financial ratios and earnings management indicators were analyzed. Significant differences between failed and non-failed firms were observed years before bankruptcy. To ensure robustness, a test sample from a future period validated the findings. Logistic regression revealed that certain earnings management indicators, particularly a synthetic index combining multiple indicators, can predict bankruptcy. Such indexes could enhance bankruptcy prediction models, offering valuable insights for assessing financial health and potential risks in businesses.

Keywords: Bankruptcy; financial ratios; earnings management; creative accounting (search for similar items in EconPapers)
JEL-codes: G33 G53 (search for similar items in EconPapers)
Date: 2025-01
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