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Integrity of financial information as a determinant of the outcome of a bankruptcy procedure

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  • Camacho-Miñano, María-del-Mar
  • Campa, Domenico

Abstract

The outcome of a bankruptcy procedure – ‘liquidation’ or ‘reorganization’ – has many legal, economic and social consequences for stakeholders of financial distressed companies. The objective of this paper is to show whether financial information integrity is a determinant for a ‘liquidation’ or ‘reorganization’ decision. Two measures of earnings management as proxies for financial reporting integrity are used on a matched sample of 2064 Spanish bankrupt and healthy companies. The results indicate that only firms which receive a ‘liquidation’ decision manipulate earnings more than their pairs. This study helps to shed light on the consequences of earnings management during a bankruptcy procedure.

Suggested Citation

  • Camacho-Miñano, María-del-Mar & Campa, Domenico, 2014. "Integrity of financial information as a determinant of the outcome of a bankruptcy procedure," International Review of Law and Economics, Elsevier, vol. 37(C), pages 76-85.
    • Handle: RePEc:eee:irlaec:v:37:y:2014:i:c:p:76-85
    DOI: 10.1016/j.irle.2013.07.007
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    More about this item

    Keywords

    Integrity; Bankruptcy procedure; Earnings management; Ex-post bankruptcy analysis; Liquidation; Reorganisation;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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