An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ben Ayers
University of Georgia

Mark Dawkins
University of Georgia

John Jiang
Michigan State University

Abstract: Motivated by recent high profile accounting scandals (e.g., Enron, WorldCom), we investigate whether there is a systematic association between bankruptcy and two financial statement attributes: conservatism and quality. We use two measures of accounting conservatism and three measures of accounting quality motivated by prior research. Consistent with the perception that less conservative and poor quality financial statements may precede bankruptcy, we find a significant association between accounting conservatism and quality proxies and bankruptcy filing. In supplemental analysis, we find that each accounting conservatism and quality measure is significantly associated with the probability of bankruptcy for up to five years preceding bankruptcy. However, results suggest that the relative explanatory power of accounting conservatism and quality measures has decreased with time. Thus, evidence suggests that the perception of an increased link between accounting conservatism and qual

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