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Accounting choices of distressed firms during debt renegotiation: evidence from Malaysia

Accounting choices of distressed firms during debt renegotiation: evidence from Malaysia Prior economics literature suggests that managers of distressed firms have incentives to opportunistically misrepresent performance in debt renegotiation because creditors suffer from an asymmetric information problem. This paper examines the assets write-off behaviour of Malaysian firms during debt renegotiation with lenders, following actual default in loan payment. This investigation is undertaken in the context of high government intervention and a lack of proper accounting standards on intangible and fixed assets write-offs. The results show that firms wrote off more assets in the first year of debt renegotiation with lenders compared with a control of sample of firms that were not involved in debt renegotiation. This result is robust after controlling for performance, audit qualification, audit quality, management changes, size and leverage in multivariate regression models. However, we find limited support that the firms undertaking renegotiation under government supervision write off assets more than the firms without government supervision. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting, Auditing and Performance Evaluation Inderscience Publishers

Accounting choices of distressed firms during debt renegotiation: evidence from Malaysia

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Publisher
Inderscience Publishers
Copyright
Copyright © Inderscience Enterprises Ltd. All rights reserved
ISSN
1740-8008
eISSN
1740-8016
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Abstract

Prior economics literature suggests that managers of distressed firms have incentives to opportunistically misrepresent performance in debt renegotiation because creditors suffer from an asymmetric information problem. This paper examines the assets write-off behaviour of Malaysian firms during debt renegotiation with lenders, following actual default in loan payment. This investigation is undertaken in the context of high government intervention and a lack of proper accounting standards on intangible and fixed assets write-offs. The results show that firms wrote off more assets in the first year of debt renegotiation with lenders compared with a control of sample of firms that were not involved in debt renegotiation. This result is robust after controlling for performance, audit qualification, audit quality, management changes, size and leverage in multivariate regression models. However, we find limited support that the firms undertaking renegotiation under government supervision write off assets more than the firms without government supervision.

Journal

International Journal of Accounting, Auditing and Performance Evaluation – Inderscience Publishers

Published: Jan 1, 2007

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