Financial accounting manipulations and bankruptcy likelihood: A study of Nordic banks

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The phenomena of accounting manipulations and bankruptcy likelihood have always been a topic of interest among researchers. The key objective of the current study is to examine the impact of fraudulent accounting practices on the likelihood of bankruptcy, and the performance of firms. Beneish M-score model and Jones model have been applied to evaluate earnings quality, whereas the Altman Z-score model has been used to analyze the level of financial distress. Based on the analysis of secondary data collected from 33 Nordic banks for the period 2011–2018, the findings disclose that Z-score of most of the sample banks has been found to be relatively high thus representing their high level of financial health. The study does not rule out potential earnings management measures applied by the sample banks. Furthermore, earnings manipulations increase the bankruptcy likelihood, especially in case of larger banks. The financial data manipulation practices artificially enhance the financial performance of banks, however, in a broad perspective; such manipulations can trigger potential financial distress.

Keywords: Accounting Manipulations, Bankruptcy, Financial Distress, Jones Model, Beneish M-Score Model, Altman Z-Score Model, Financial Performance, Discretionary Accruals

JEL Classification: G32, G33, G38, M14, M40, M48

Received: 08.11.2021
Accepted: 12.11.2021

How to cite: Hundal, S., & Eskola, A. (2021). Financial accounting manipulations and bankruptcy likelihood: A study of Nordic banks. In K. M. Hogan, & A. Kostyuk (Eds.), Corporate governance: Fundamental and challenging issues in scholarly research (pp. 85–90). https://doi.org/10.22495/cgfcisrp13