Earnings management, business strategy, and bankruptcy risk: evidence from Indonesia

The purpose of this study is to examine the effect of accrual earnings management and business strategy to bankruptcy risk. Multiple Least Square (MLS) regression and robust regression of M-Estimator regression are performed on financial data of 1,068 non-financial firms listed on the Indonesia Stoc...

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Bibliographic Details
Published in:Heliyon 2020-02, Vol.6 (2), p.e03317-e03317, Article e03317
Main Authors: Agustia, Dian, Muhammad, Nur Pratama Abdi, Permatasari, Yani
Format: Article
Language:English
Subjects:
Accounting
bankruptcy
Bankruptcy risk
Business
Business management
business planning
Business strategy
credit
Earnings management
Indonesia
Industry management
leadership
regression analysis
risk
Risk management
stakeholders
stock exchange
Strategic management
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Summary:The purpose of this study is to examine the effect of accrual earnings management and business strategy to bankruptcy risk. Multiple Least Square (MLS) regression and robust regression of M-Estimator regression are performed on financial data of 1,068 non-financial firms listed on the Indonesia Stock Exchange (IDX). The result indicates that there is no relationship between earnings management and bankruptcy risk, while firms that implement either one of two generic business strategies of cost leadership or differentiation, significantly mitigate the risk of bankruptcy. The effect of earnings management to bankruptcy risk is essential for external stakeholders, such as investors and creditors, to assess bankruptcy risk, financial capability, and credit worthiness of a firm, while business strategy effect on bankruptcy risk benefits internal stakeholders, such as managers, in formulating strategies to deal with going concern issues. Earnings management, Business strategy, Bankruptcy risk; Accounting; Industry management; Business management; Strategic management; Risk management; Business
ISSN:2405-8440
2405-8440
DOI:10.1016/j.heliyon.2020.e03317