Accounting Manipulation of Financially Distressed Firms: Malaysian Evidence

Firms approaching deterioration in financial performance may make income-increasing accounting choices an attempt to survive what is probably deemed by the management as a temporary bad period. This study attempts empirically examine real activities-based earnings manipulation among financially troubled firms Malaysia over years prior and after being officially designated “financially distressed firm.” The detects activities investigating patterns cash flow from operations (CFO), discretionary expenses, production costs. Results reveal that CFO expenses are unusually low for preceding official designation firm. evidence suggests temporarily increase sales reduce expenditures improve reported margins. Moreover, having likely exhausted opportunities manipulation, manipulate activities, such expenditures, highly aggressively identified contributes literature going beyond examination of abnormal accruals derived models gain insight into measurement operational elements income rather than implementation effects system.