Big Bath and Insolvency

Document Type : Research Paper

Authors

1 PhD of Accounting, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran

2 Assistant Professor of Accounting, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran,

3 Assistant Professor of Accounting, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran

4 Assistant Professor of Economic, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran,

Abstract

Big Bath Accounting is a behavior in which management intends to increase the capacity for the next period by increasing costs during an undesirable period in order to achieve maximum desirability. This happens when a firm suffers from insolvency, restructuring and loss making and it has not obtained the foreseeable profit. The purpose of this study is to analyze application of the big bath technique by an insolvent firm. Data is collected from a sample of 144 firms listed in Tehran Stock Exchange during a 10 years period from 2007 to 2016 and analysed through the panel data and multivariate regression models. The results of research hypotheses indicate that there is no significant relation of big bath with lack of liquidity, operational failure and bankruptcy, because firms do not have an optimal focus on the use of big bath in the insolvency conditions. In addition, results show that there is a significant and reverse relationship between the failure to fulfil obligations and big bath, that means firms being failed to fulfil their obligations use big bath seek technique.

Keywords

References

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History

  • Receive Date: 10 November 2018
  • Revise Date: 18 February 2020
  • Accept Date: 02 March 2019

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