Given their prevalence in recent years, earnings management and financial restatements have been at the center of much of the discussion surrounding corporate malfeasance. This study builds a probability model for predicting the likelihood of earnings restatements by analyzing the trends in and the deviations from the industry averages of the return on assets, accounts receivable turnover, net profit margin, and cash flow to net income measures. Data are obtained for a sample of 104 firms (restating as well as non-restating) for the 2000 to 2001 period. The results suggest that the deviation from the industry average of the accounts receivable turnover and the variability in the cash flow to net income are good barometers for detecting fraudulent accounting. Potential restating firms have higher accounts receivable turnover rates than their industry counterparts and downward trends in their cash flow to net income, signaling the likelihood of a restatement, at least in the current study.
Professional football teams that once chose to list their stock in the exchange markets have started to delist in the last few years. This study presents a modified version of Altman’s 1968 bankruptcy model and applies multivariate discriminant analysis to predict which financial and socioeconomic factors affect a team’s decision to delist from a stock market. Our non-metric dependent variable is listed/delisted teams, while our independent variables include a number of Altman’s financial ratios, GDP per capita, winning percentage, and two measures specific to soccer franchises–broadcasting and sponsorship revenues. Data are obtained for a total of 37 European teams, out of which 21 remained listed, while 16 were delisted at the time this study was written. Results suggest that the two main variables affecting a delisting decision are broadcasting revenues and working capital. Wealthier football teams that remain listed could benefit from our results by focusing on maintaining a positive working capital, while for smaller teams it might be wise to find alternative revenue sources other than TV revenues.
