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Financial statement recasting and credit risk assessment

Financial statement recasting and credit risk assessment This article examines the importance of adjustments to corporate financial statements for credit risk assessment. Prior research has tended to examine individual adjustments one at a time. As correlations among adjustments and control variables may bias inferences when researchers examine a single adjustment and ignore other adjustments, our results provide important new information about previous research by documenting whether or not such bias exists. We find that financial statement recasting adjustments – which aim to better reflect firms' indebtedness, financing costs and recurring earnings than reported financial numbers – are reflected in bond yield spreads and have an economically significant impact on credit pricing and loss forecasting. Among individual adjustment categories, we find that those for off‐balance‐sheet leases, defined benefit pensions and securitized debt have an economically significant impact on credit pricing and loss forecasting. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting & Finance Wiley

Financial statement recasting and credit risk assessment

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References (44)

Publisher
Wiley
Copyright
Accounting and Finance © 2012 AFAANZ
ISSN
0810-5391
eISSN
1467-629X
DOI
10.1111/acfi.12002
Publisher site
See Article on Publisher Site

Abstract

This article examines the importance of adjustments to corporate financial statements for credit risk assessment. Prior research has tended to examine individual adjustments one at a time. As correlations among adjustments and control variables may bias inferences when researchers examine a single adjustment and ignore other adjustments, our results provide important new information about previous research by documenting whether or not such bias exists. We find that financial statement recasting adjustments – which aim to better reflect firms' indebtedness, financing costs and recurring earnings than reported financial numbers – are reflected in bond yield spreads and have an economically significant impact on credit pricing and loss forecasting. Among individual adjustment categories, we find that those for off‐balance‐sheet leases, defined benefit pensions and securitized debt have an economically significant impact on credit pricing and loss forecasting.

Journal

Accounting & FinanceWiley

Published: Mar 1, 2014

Keywords: ; ;

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