engleski

Does hedge accounting contribute to reducing accounting information assymmetry and Z-score bias?

The bankruptcy prediction models development presented one of most exciting topics for accounting researchers across the globe for the past five decades. In recent period, and especially during the financial crises, research community has even intensified efforts in looking for the applicable model that will, perceiving statistically acceptable tolerable error enable reliable prediction of firms’ bankruptcy probability. The stake in succeeding having developed model, and that (disregarding economy specifics) predicts universally the bankruptcy probability with sufficiently high precision, is enormously high. It directly implies drastic fall in transactions costs between borrowers and lenders, reliable and affordable risk assessment analysis and more optimistic capital flow. This article conceptualizes explanatory notes on bias, evidenced in legitimate research studies on bankruptcy prediction models, constructed of various financial ratios. We argue that the level of discretion over financial reporting considerably influences financial figures and, correspondingly, errors in bankruptcy models application. We assume that discretion directly correlates to type I error (no bankruptcy for bankrupt firms) and, thereafter, construct relationship of hedge accounting inefficacy to type I error results exposure.

accounting information asymmetry ; bankruptcy prediction ; financial reporting quality ; hedge accounting

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