The impact of the company's life cycle on the relationship between earnings management and bankruptcy risk “An applied study on non-financial companies listed on the Palestine Stock Exchange PSE”

Abstract

This study aimed to identify the impact of the company's life cycle on the relationship between earnings management and the bankruptcy risk in non-financial companies listed on the PSE. The study was conducted on a sample consisting of (29) companies representing (11) companies from the industrial sector, and (9) companies from the service sector, and (9) companies from the investment sector, during the period from 2014 – 2022. This study relied on the main study variables in addition to several control variables, which are: company’s size, leverage, profitability, and growth rate. This study found a high rate of practicing earnings management in non- financial companies listed on the PSE. The results of the study also showed that there is a reverse effect of earnings management on the bankruptcy risk for non-financial companies listed on the PSE. And an effect of the company’s life cycle on the relationship Between earnings management and the bankruptcy risk. This study recommended increasing financial awareness among investors and making informed decisions when investing in Palestinian companies that may practice earnings management, which could reflect negatively on them in the long run. Be careful when investing in Palestinian companies in the introduction and shake-out stages, as they are more vulnerable to bankruptcy, and wait until these companies stabilize and make the decision to invest in them. It also recommended that external auditors should exercise professional care in these companies because investors rely on them in their investment decisions and to uncover practices that harm users of financial statements.