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Earnings management indicators as predictors of bankruptcy in Spanish companies

Author

Listed:
  • Martha Bernate-Valbuena

    (Department of Economy, Accounting and Finance, University of Monterrey, México)

  • Begoña Gutiérrez

    (2Department of Accounting and Finance, Universidad de Zaragoza, Spain, School of Economics and Business)

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.

Suggested Citation

  • Martha Bernate-Valbuena & Begoña Gutiérrez, 2025. "Earnings management indicators as predictors of bankruptcy in Spanish companies," Documentos de Trabajo dt2025-01, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    • Handle: RePEc:zar:wpaper:dt2025-01
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    More about this item

    Keywords

    Bankruptcy; financial ratios; earnings management; creative accounting;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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