The Study of Earnings Management of the Companies with Financial Distress Symptom

• Main Authors: Yu-Min Liang, 梁煜旻
• Other Authors: Yu-Hui Su
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/03513706680035936644

碩士 === 東吳大學 === 會計學系 === 93 === The real operating result can’t be represented in the financial statements of financial distress companies for those companies often manipulate earnings when their financial condition gets worse and worse. Prior researches often define financial distress as the timing of bankrupt or restructure. They are deficient because the financial distress is a “process”, not timing. If we can learn earlier how the financial distress companies manipulate earnings, it may be beneficial to capital market. According to previous statement, we chose financial distress symptom companies from the listed companies during the period of 1993-2003 based on the five signals (operating revenue, operating income, income before tax, continuing income and net income). We separated the samples into electronic and non-electronic industries and observed the differences between the companies with financial distress symptom and those without financial distress symptom. Moreover, we made a comparison among the companies with financial distress symptom themselves. The conclusions can be drawn as follows: 1.The financial symptom companies will adopt different earnings managements in different phases of symptom period. （1）Under fixed-period method, we found that in the earlier phase of symptom period, electronic companies use unusual accruals and unexpected R&D expense while non-electronic companies use unexpected gain on disposal of assets. And in the later phase of symptom period, electronic companies use unexpected gain on disposal of assets while non-electronic companies use unexpected gain on disposal of investments. （2）Under variable-period method, electronic companies use unusual accruals, unexpected gain on disposal of investments, unexpected gain on disposal of assets and unexpected related parties transaction in the earlier phase of symptom period while non-electronic companies use unexpected gain on disposal of assets and unexpected gain on disposal of investments. On the other hand, they both use unexpected R&D expense in the later phase of symptom period. 2.The financial distress companies will manipulate earnings to conceal the financial distress condition when they enter the first phase of symptom period. Electronic companies manipulate earnings mainly by unusual accruals and unexpected gain on disposal of assets; Non-electronic companies manipulate earnings mainly by unexpected R&D expense, unexpected gain on disposal of assets, and unexpected gain on disposal of investments. 3.The longer the symptom period remains, the more earnings management tools are used by the financial distress companies.