Earnings Management in Companies in Restructuring According to The Slovak Insolvency Legislation

The main aim of the paper is to find out ex-post whether and to what extent earnings management was used in the selected companies, namely in companies, which in accordance with the applicable insolvency legislation of the Slovak Republic are or have been in a state of restructuring. These entities have undergone a formal (judicial) debt restructuring process by meeting the conditions of the Act No. 7/2005 Coll. on bankruptcy and restructuring and on changes and supplements to some laws. A formal restructuring is considered generally as the one of existing ways of resolving the insolvency of companies. Unlike bankruptcy, it allows a company to continue operating with a view of its economic recovery in the interests of existing creditors and provided that this procedure ensures that the claims of creditors will be more effectively satisfied than in the case of bankruptcy. The identification of the possible existence of earnings management was performed using the Beneish    5-variable model. The findings indicate that the intensity of earnings manipulation in the companies in the restructuring intensified closer to the restructuring period.