The ability of financial distress models to predict managerial behaviour in failed firms

Brooks, Robertson W. (1995). The ability of financial distress models to predict managerial behaviour in failed firms Honours Thesis, Dept. of Commerce, University of Queensland.

       
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Author Brooks, Robertson W.
Thesis Title The ability of financial distress models to predict managerial behaviour in failed firms
School, Centre or Institute Dept. of Commerce
Institution University of Queensland
Publication date 1995-01-01
Thesis type Honours Thesis
Total pages 129
Language eng
Subjects 14 Economics
Formatted abstract
This study examines the ability of financial distress prediction models to explain the actions taken by management of firms prior to failure. The study considers both opportunistic and efficient mechanisms utilised by firms in response to financial distress. Hypotheses are developed in. relation to managerial discretion over the use of income increasing accounting policy methods and the effect monitoring mechanisms such as board changes, threat of a qualified auditor report and auditor quality have in mitigating such discretion. Further hypotheses are developed in regard to efficient mechanisms adopted by management to alleviate financial distress costs. The results generally reveal that financial distress prediction models possess limited ability in explaining managerial earnings manipulation activities. The results relating to the proposed monitoring mechanisms ability to mitigate accruals management were also found to be inconclusive. Finally, support is provided that financial distress prediction models significantly explain the utilisation of debt refinancing activities and non-current asset sales for failing firms. Such activities are proposed to be an efficient contractual mechanism for reduction of financial distress costs incurred by the failing firm.

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
 
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Created: Thu, 21 Oct 2010, 19:18:37 EST by Ning Jing on behalf of The University of Queensland Library