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Journal articles (2019), Abacus, 55 (2), pp. 273-305

Earnings Management in Chapter 11 Bankruptcy

FISCHER Timothy C.G., GAVIOUS Ilanit, MARTEL Jocelyn

We study the impact of earnings management prior to bankruptcy filing on the passage of firms through Chapter 11. Using data on public US firms, we construct three measures of earnings management and we find that earnings management prior to bankruptcy significantly reduces the likelihood of Chapter 11 plan confirmation and emergence from Chapter 11. The results are driven primarily by extreme values of earnings management, characterized by one or two standard deviations above or below the mean. The findings are consistent with creditors reacting positively to unduly conservative earnings reports and negatively to overly optimistic earnings reports. Link to the article

FISCHER, T.C.G., GAVIOUS, I. and MARTEL, J. (2019). Earnings Management in Chapter 11 Bankruptcy. Abacus, 55(2), pp. 273-305.

Keywords : #Bankruptcy, #Chapter-11, #Financial-reorganization, #Earnings-management, #Auditor-choice