Authors: Nikolaos Arnis, Grigorios Gikas, Georgios Kolias

Title: Empirical analysis of Earnings Management in bankrupt firms: The case of Greece

Abstract

The present paper investigates whether the administrations of Greek companies that are in bankruptcy implement Earnings Management techniques in order to embellish financial statements before their collapse.

For this purpose, the financial statements of companies of the trade and industrial sector of the period 2003-2014 were analyzed. The sample amounted to 385 bankrupt companies and was matched with an equal sample of healthy companies in the same industry. The sample was randomly formed and was separated into two sub periods. The period 2003 – 2008 before the economic crisis and the period 2009 – 2014, during which the Greek economy was in crisis and recession.

Using the factor analysis method, five financial indicators were selected, which constituted the independent variables of the models of the discrete analysis (MDA) and the logarithmic model (Logit).

The investigation showed that the administrations of certain companies, prior to their bankruptcy, applied creative accounting, which led to the alteration and falsification of the published financial statements.