Abstract
The phenomena of accounting manipulations and bankruptcy likelihood have always been a topic of interest among researchers. The key objective of the current study is to examine the impact of fraudulent accounting practices on the likelihood of bankruptcy, and the performance of firms. Beneish M-score model and Jones model have been applied to evaluate earnings quality, whereas the Altman Z-score model has been used to analyze the level of financial distress. Based on the analysis of secondary data collected from 33 Nordic banks for the period 2011–2018, the findings disclose that Z-score of most of the sample banks has been found to be relatively high thus representing their high level of financial health. The study does not rule out potential earnings management measures applied by the sample banks. Furthermore, earnings manipulations increase the bankruptcy likelihood, especially in case of larger banks. The financial data manipulation practices artificially enhance the financial performance of banks, however, in a broad perspective; such manipulations can trigger potential financial distress
Highlights
Nordic countries are well known for the high level of trust in every walk of life
The findings show that there is some evidence of the Nordic banks committing acts of earnings management in their financial reports
Business organizations provide financial reporting and disclosures to communicate their financial health to the outside world
Summary
Nordic countries are well known for the high level of trust in every walk of life. Nordic countries have a distinction of being among the least corrupt countries in the world for a long time (Romberg, 2019). The Nordic banking industry has been free from financial crime activities, for example, Nordic banks have experienced a minimal incidence of occurrence of anti-money laundering (AML) scandals. Unlike their other European counterparts, Nordic banks have been least affected by technological and operational process transformations, and this feature highlights the readiness of Nordic banks to adapt according to new developments in the fast-changing business environment. In recent times there have been a few instances of the alleged involvement of several Nordic banks in money laundering scandals This unhealthy phenomenon in the Nordic banking industry needs thorough academic investigation to understand its dynamics. A positive association has been found between accounting manipulations and the performance measures of banks
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