Market perceptions of discretionary accruals by debt renegotiating firms during economic downturn

Kamran Ahmed, Jayne M. Godfrey, Norman Mohd Saleh

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

This study addresses how a stock market prices earnings components around a sudden and severe economic downturn. In particular, the study examines the market valuation of discretionary accruals for debt renegotiating Malaysian firms during the Asian financial crisis. Our analysis shows that negative discretionary accruals for debt renegotiating firms are associated with higher market values of equity and are not related to the firms' future earnings. These findings are consistent with investors placing a positive value on the probability that negative accruals increase the likelihood that concessions can be extracted from lenders during renegotiation. In contrast, discretionary accruals for a control sample of non-debt renegotiating firms are not significantly associated with stock prices but are positively associated with future earnings. Crown

Original languageEnglish
Pages (from-to)114-138
Number of pages25
JournalInternational Journal of Accounting
Volume43
Issue number2
DOIs
Publication statusPublished - 2008

Fingerprint

Debt
Discretionary accruals
Economic downturn
Asian financial crisis
Placing
Market price
Accruals
Market value
Earnings components
Renegotiation
Concession
Equity
Investors
Market valuation
Stock prices
Stock market

Keywords

  • Debt renegotiation
  • Discretionary accruals
  • Earnings management
  • Financial distress
  • Malaysia

ASJC Scopus subject areas

  • Accounting

Cite this

Market perceptions of discretionary accruals by debt renegotiating firms during economic downturn. / Ahmed, Kamran; Godfrey, Jayne M.; Mohd Saleh, Norman.

In: International Journal of Accounting, Vol. 43, No. 2, 2008, p. 114-138.

Research output: Contribution to journalArticle

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