Analyzing how accounting for actual earnings manipulation affects the predictive power of the Altman model for business failure companies

Simple and effective tools that predict the financial status of companies can aid shareholders in preventing financial crises and bankruptcies, while also facilitating necessary actions to improve the company's condition. Conversely, having access to such a tool may serve as a positive motivator for investors seeking to select an ideal investment portfolio. The main objective of the present study is to examine the Altman model's bankruptcy prediction using real earnings management tools in companies listed on the Tehran Stock Exchange. During the period of ۱۳۸۲ to ۱۳۹۳, a logistic regression method was employed to study a total of ۹۶ companies. It was shown by the findings that the inclusion of abnormal levels of operating cash flows, production costs, and discretionary expenses can result in the degradation of the predictive capability of the Altman model for bankruptcy.

Keywords:

Real earnings management , Bankruptcy , Altman model