Financial Statement Recasting and Credit Risk Assessment

36 Pages Posted: 4 Mar 2014

See all articles by George E. Batta

George E. Batta

Claremont McKenna College - Robert Day School of Economics and Finance

Ananda R. Ganguly

Claremont McKenna College - Robert Day School of Economics and Finance

Joshua G. Rosett

Claremont McKenna College - Robert Day School of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 2014

Abstract

This article examines the importance of adjustments to corporate financial statements for credit risk assessment. Prior research has tended to examine individual adjustments one at a time. As correlations among adjustments and control variables may bias inferences when researchers examine a single adjustment and ignore other adjustments, our results provide important new information about previous research by documenting whether or not such bias exists. We find that financial statement recasting adjustments – which aim to better reflect firms' indebtedness, financing costs and recurring earnings than reported financial numbers – are reflected in bond yield spreads and have an economically significant impact on credit pricing and loss forecasting. Among individual adjustment categories, we find that those for off‐balance‐sheet leases, defined benefit pensions and securitized debt have an economically significant impact on credit pricing and loss forecasting.

Keywords: Credit analysis, Financial analysis, Credit pricing

Suggested Citation

Batta, George E. and Ganguly, Ananda Roop and Rosett, Joshua G., Financial Statement Recasting and Credit Risk Assessment (March 2014). Accounting & Finance, Vol. 54, Issue 1, pp. 47-82, 2014, Available at SSRN: https://ssrn.com/abstract=2404090 or http://dx.doi.org/10.1111/acfi.12002

George E. Batta (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

Ananda Roop Ganguly

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States
(909) 607-0720 (Phone)
(909) 621-8249 (Fax)

HOME PAGE: http://www.claremontmckenna.edu/academic/faculty/profile.asp?Fac=519

Joshua G. Rosett

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-3625 (Phone)
909-621-8249 (Fax)

HOME PAGE: http://www.claremontmckenna.edu/academic/faculty/profile.asp?Fac=372

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