A Credit Risk Model that Incorporates Adjustments for Both Real- and Accrual-Earnings Management Measures
Date Issued
2014
Date
2014
Author(s)
Chang, Chun-Chieh
Abstract
Traditional credit risk rating models based on financial ratios are prevalent; nevertheless, problems with credit scores might emerge from some earnings manipulaitons.
This study aims to explore the influences of real and accrual-based earnings management schemes on the effectiveness of accounting credit risk models, using data from publicly listed companies in Mainland China. Specifically, this study adopts as dummy variables that reflect the significance of real and accrual-based earnings manipulation input factors to the credit risks rating model, aiming to explore the extent to which such modification adds to in-sample fitting (learning) period and out-of-sample (forecasting) period explanatory power of the forecast models.
Moreover, this study identifies three types of firms including firms that legally defaulted during the sample period (hereafter the actual default firms), the firms that encountered substantial debt negotiations or reconstructions but did not legally defaulted during the sample period (hereafter the stealth default firms), and the firms that had not been subject to either of the defaults during the same period (hereafter the continuing firms). Thereby it conducts tests with (1) the actual default firms serving as the experimental group and (2) both actual default firms and stealth default firms serving as the experimental group.
The empirical results shows: during the learning period, adding real earnings management and discretionary accrual to the models enhance the explanatory power, regardless of explaining actual or stealth defaults. As for the out-of-sample (forecasting) tests, including real earnings management and accrual-based earnings management measures in the predicting models, the forecast accuracy appears to increase significantly. However, the effect of adding the earnings manipulation measures on stealth plus-actual default sample are insignificant.
Subjects
實質盈餘管理
裁決性應計數
調整風險評估模型
隱性違約
Type
thesis
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