The Behaviour of Earnings, Accruals and Impairment Loss of Failed New Zealand Finance Companies
Kabir, H. and Laswad, F. (2014). The Behaviour of Earnings, Accruals and Impairment Losses of Failed New Zealand Finance Companies, Australian Accounting Review, 24 (3): 262-275.
Posted: 25 Jul 2015 Last revised: 29 Sep 2017
Date Written: 2014
This study examines the behaviour of earnings, accruals and impairment losses of failed ﬁnance companies in New Zealand. It draws on conservatism in the development of research hypotheses about accounting variables that are likely to contain clues to future failures of ﬁnance companies. The hypotheses are tested by examining the trend of earnings after tax (EAT), accruals and impairment losses of 32 ﬁnance companies that failed from 2006 to 2011. Data were collected from the annual reports of the sampled companies and the ﬁrst reports of receivers of failed companies. The study ﬁnds that EAT and accruals declined, and impairment losses increased signiﬁcantly in the last two ﬁnancial statements prior to failure, when compared with other years. This suggests that changes in EAT, accruals and impairment losses may provide indications of impending failure.
Keywords: Business failure, Conservatism, Finance companies, New Zealand
JEL Classification: M41, M42
Suggested Citation: Suggested Citation