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Financial statement recasting and credit risk assessment

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  • George Batta
  • Ananda Ganguly
  • Joshua Rosett

Abstract

type="main" xml:id="acfi12002-abs-0001" xml:lang="en"> 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.

Suggested Citation

  • George Batta & Ananda Ganguly & Joshua Rosett, 2014. "Financial statement recasting and credit risk assessment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(1), pages 47-82, March.
    • Handle: RePEc:bla:acctfi:v:54:y:2014:i:1:p:47-82
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    File URL: http://hdl.handle.net/10.1111/acfi.2014.54.issue-1
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    Cited by:

    1. George Batta & Ananda Ganguly & Joshua George Rosett, 2014. "Disclosure-Derived Financial Statement Adjustments in Equity Valuation," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(02), pages 1-39.
    2. Jacqueline Christensen & Pamela Kent & Tom Smith, 2016. "The decision to outsource risk management services," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(4), pages 985-1015, December.

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