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

See all articles by Humayun Kabir

Humayun Kabir

Auckland University of Technology

Fawzi Laswad

Massey University

Date Written: 2014

Abstract

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

Kabir, Humayun and Laswad, Fawzi, The Behaviour of Earnings, Accruals and Impairment Loss of Failed New Zealand Finance Companies (2014). 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. , Available at SSRN: https://ssrn.com/abstract=2635362 or http://dx.doi.org/10.2139/ssrn.2635362

Humayun Kabir (Contact Author)

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand
+64 21 08309355 (Phone)

Fawzi Laswad

Massey University ( email )

Palmerston North
New Zealand

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