A Study on Earnings Management of Indian Bankrupt Companies

Abstract

In order to suppress their financial crises from stakeholders and prevent unfavorable outcomes like a damaged reputation or legal action, bankrupt enterprises could be more motivated to forge revenues. Therefore, in comparison to other organizations, bankrupt firms are probably going to be more involved in actual earnings management. We have thus made the decision to look at how much real earnings management is used by bankrupt firms in comparison to other businesses.

This study imparts evidence that managers in bankrupt companies employ real earnings management (REM) activities to manipulate earnings prior to bankruptcy. Bankrupt companies exhibit higher levels of aggregated REM compared to control companies, indicating a pattern of earnings manipulation to conceal poor performance. The findings support the hypothesis that bankrupt companies engage in more REM than control companies in an attempt to endure financial distress.