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Starting in March 2020, Indonesia had the COVID-19 pandemic. Furthermore, this situation has decreased the utilization of highways due to complying with the government regulation, including work from home and large-scale social restrictions to reduce the spreading the corona virus. There are three highway companies listed on Indonesia Stock Exchange such as CMNP, META, and JSMR. On the other hand, the research about the financial performance and the financial distress prediction in Highways sector, especially in Indonesia is not available during the COVID-19 pandemic. This research is aimed to evaluate the financial distress by the Zmijewski model with two criterions: bankrupt and non-bankrupt zone and the financial performance by state-owned enterprise (SOE) rating with three criterions: healthy, less healthy, and unhealthy condition. The period of research is Q1 2019 – Q1 2020 as the period before the COVID-19 pandemic and Q2 2020 – Q2 2021 as the period during the COVID-19 pandemic. The study concludes that all highway companies was in non-bankrupt zone by the Zmijewski model for both before and during the COVID-19 pandemic. In addition, based on SOE rating on average for the period before the COVID-19 pandemic, CMNP, META, and JSMR achieved rating consecutively BBB, BBB, and BB. Meanwhile, on average, for the period during the COVID-19 pandemic, CMNP, META, and JSMR achieved ratings consecutively BB, BB, and B.

Introduction: Financial failure is a concept that may arise from many internal and external factors such as operational, financial, and economic items and may incur serious losses. Over-indebtedness arising from managerial misjudgments may cause high financial distress, insufficiency, and bankruptcy. In this regard, determination of effects of capital structure decisions on financial failure risk is crucial.

Aim: The main purpose of this study is to explore the relationship between capital structure decisions and financial failure risk. For this purpose, data from Borsa İstanbul (BIST) for listed food and beverage companies for the period from 2004 to 2019 is used. Another purpose of this study is to compare the financial failure models considering capital structure theories.

Method: In the study, capital structure decisions are associated with five different financial ratios; while the financial failure risk is proxied by financial failure scores of Altman (1968), Springate (1978), Ohlson (1980), Taffler (1983), and Zmijewski (1984). Therefore, five different panel data models are used for testing these hypotheses.

Findings: The results of panel data analysis reveal that capital structure decisions have statistically significant effects on financial failure risk for all models; however, those effects vary from one financial failure model to another. Also, the results show that in the models in which financial failure risk is proxied by the Altman (1968) and Taffler (1983) scores, the aggressive financial policies increase the financial failure risk. However, regarding the models in which financial failure risk is proxied by the Springate (1978), Ohlson (1980), and Zmijewski (1984) scores, aggressive financial policies decrease the financial failure risk.

Originality of the Study: To the best of our knowledge, this chapter is original and important in terms of revealing the effects of capital structure decisions on the financial failure risk and comparing the financial failure models.

Implications: The results revealed that the risk of financial failure models represented by Altman (1968) and Taffler (1983) scores are found to be statistically stronger and more successful in meeting theoretical expectations compared to other models. Therefore, it would be more appropriate to refer Altman’s (1968) and Taffler’s (1983) financial failure models in financial failure risk measurements.

Accounting literature is replete with quantitative models that use financial ratios to identify the probability of a going concern qualification. These studies, however, ignore qualitative cues that auditors use to identify going concern problems and mitigating factors (sound financial plans etc.) that auditors take into account in their choice of report. Tests whether, in the presence of financial distress, non‐financial cues play an important role in auditors’ choice. Results indicate that non‐financial variables can be used to discriminate between the auditor’s decision to issue the going concern qualified versus the clean report. Helps company management understand how auditors evaluate their clients and the importance of the qualitative criteria used in their evaluation. Can be used to predict the most probable outcome prior to the external audit. Second, facilitates understanding of the non‐financial red flags that could trigger the going concern report. Third, can be used to analyze potential acquisition targets, and, if the acquisition target is still otherwise desirable, be used in pricing negotiations. Fourth, can be applied to aspects of the firm’s own division’s operations in order to enable the internal audit department to better allocate its own investigational and problem‐solving resources. Finally, the fact that qualitative factors have power in predicting the going concern modified report suggests that company decision makers can evaluate others even if the auditor for political or other reasons has chosen not to render a modified report.

The purpose of this study is to investigate the effect of company characteristics such as the level of financial distress, client size and type of auditor on the propensity to issue modified audit opinions and to assess comparative differences in audit opinions during two significant economic crises in Turkey.

Logistic regression model is used to test the incremental contribution of each company characteristic on issuing the type of audit opinion for crisis periods. Additionally, to understand the reasons for differences in audit opinions between two types of crisis periods, the authors adopt Francis and Krishnan’s (2002) approach in which an auditor’s propensity to issue modified opinion may be jointly based on changes in client characteristics and auditor reporting strategies in that period.

The results indicate that there is a positive relationship between financial distress and the likelihood of receiving modified opinions in both crisis periods. Additionally, client size affects audit opinions negatively in both periods significantly. Auditors show higher propensity to issue a modified opinion during the domestic than the global financial crisis period, which could be explained by the changes in client characteristics more than their reporting strategy.

This study provides supportive evidence that the company characteristics including the financial distress can be very useful predictors for the auditors’ decisions while issuing their opinions.

The findings of different auditor behaviors during crises periods and possible reasons are the main contributions of this study for international and domestic regulators, investors, audit firms, academics and standard setters in emerging economies.

The purpose of this paper is to examine the costs to audit firms in terms of lost revenues of losing small clients due to auditor switching or client bankruptcy after issuing first-time going concern modified opinions.

A population of small Swedish companies receiving first-time going concern modified opinions in 2009 was examined to determine the effects two years later compared with a matched sample of financially stressed companies that had not received going concern modified opinions.

The results indicate that both auditor switching and client bankruptcy are positively related to receipt of going concern modified opinions. Furthermore, the authors find empirical evidence that auditors issuing first-time going concern modified opinions lose proportionately more fees through auditor switching and client bankruptcy than do auditors not issuing such opinions to financially stressed clients. Finally, the authors found that the going concern modified opinions issued by Big 4 firms are no more harmful to clients than are those issued by other audit firms.

The authors recognize a limitation of this study regarding the choice of control companies. Although the authors attempted to find similarly sized and similarly financially stressed companies from the same industries as those companies in the test group, the authors may have missed other variables relevant to auditor switching or client bankruptcy.

A practical implication for the audit profession is the increased awareness of the fact that the financial dependence issues reported in this study extend to auditors with small client companies.

This is the first study to examine fees lost due to auditor switching and client bankruptcy caused by going concern modified opinions in a population of small companies. It contributes to the mixed evidence presented in previous research as to the extent to which going concern modified audit opinions are self-fulfilling prophecies.

Bankruptcy, stock price fluctuations and making decisions to invest on the listed companies on the Tehran Stock Exchange show the need to have some tools for evaluating the financial potential of companies. One of the tools for evaluating financial power to investment in companies is using analysis of financial ratios and obtaining the patterns for predicting the bankruptcy of companies. The purpose of this study is to modify the current patterns for predicting bankruptcy in proportion to the environmental status of Iran and to present a new pattern for determining the bankruptcy of the listed companies.

To modify the patterns and present a new pattern, in this research, the hypotheses pertinent to the ability for right classification of the companies are designed by the modified patterns of predicting the company’s bankruptcy and ranking, that is according to the envelopment analysis method and by comparison of the results and presenting a new prediction pattern.

The hypotheses test results show that modification of bankruptcy patterns and presentation of a new bankruptcy pattern are confirmed by the data envelopment analysis.

The current paper is almost the first paper which combined several different methods of bankruptcy prediction.

The purpose of this paper is to examine and analyze the factors that affect an auditor’s efficiency in completing the audit process proxied by audit report lag. The factors used in this study are selected by looking at the characteristics of the company and the characteristics of an auditor.

Company characteristics were proxied by the audit committee effectiveness, financial condition, accounting complexity and profitability, whereas auditor characteristics were proxied with auditor reputation, audit tenure and auditors industry specialization. Populations of this study were all manufacturing companies listed in Indonesian Stock Exchange in 2014–2016. Based on the purposive sampling method, the number of samples obtained from 231 companies was 77. Multiple linear regression method was used to analyze this study. Hypothesis testing was done by statistical t-test (partial).

The results showed that partially variables of the audit committee effectiveness and profitability had a significant negative effect on audit report lag while the variable financial condition had a significant positive effect on audit report lag. Meanwhile, variables of the accounting complexity, auditor reputation, audit tenure and auditors’ industry specialization did not show significant influence on audit report lag.

This study tests both company’s and auditor’s characteristic on audit report lag that as far as authors know never been tested simultaneously.

This paper aims to examine the effect that the recent financial crisis had on auditor conservatism in the form of increased going-concern opinions.

This study uses a sample of US’ distressed firms from 2005 to 2011 to test the change in going-concern opinions issued. This paper uses a logistic regression model to control for other predictors of going-concern opinions to determine when the financial crisis led to an increase in auditor conservatism.

The authors find that auditors became more conservative in the form of issuing higher levels of going-concern opinions even after controlling for other predictors of going-concern opinions. This increased conservatism was present in both Big 4 and non-Big 4 accounting firms. The increased conservatism quickly returned to normal levels when the financial crisis eased.

These findings add to the literature on the effects of environmental changes on audit opinions. Additionally, this study finds a difference in the timing of the reaction by large and small accounting firms, but, overall, it finds consistency in that both increased conservatism during the crisis and quickly returned to normal afterward.

The purpose of this paper is to realise a complete analysis at the company level using grey systems theory for shaping the relations among variables.

Starting from the symptoms that can be identified and moving forward to causes that determine a specific stage in a company's development and long‐term survival, all the aspects that can appear and affect a company's performance and bankruptcy are taken into account. Also, due to the fact that all the activities that took place in a company are running in an uncertain and a continually changing environment, grey systems theory was chosen to better shape the relations among the implied variables. Even when referring to a company's diagnosis or to its prediction, the involved aspects are presented and depicted. A numeric example is also computed in the last part of the paper.

The results are convincing: not only that the diagnosis of the company can show the main elements, factors that are affecting a company's activity, but even the main identified factors can be used for a prediction on a company's future evolution.

The method exposed in the paper can be used by any company for realising the diagnosis of the actual stage in which a firm could be situated and even for making further predictions regarding its evolution.

The paper succeeds in realising both diagnosis and prediction of a firm's current and future stage by using one of the newest developed theories: grey systems theory.

This study aims to analyse the following: first, the financial performance of General Insurance Re (GIC Re) using performance ratios (PRs); second, the uniformity of different financial performance indicators of GIC Re; third, the internal growth capacity of GIC Re; and finally, the likelihood of GIC Re going into financial distress.

As a sample, GIC Re, the lion shareholder in Indian Reinsurance Industry has been considered in the present study. All the necessary data have been extracted from the secondary sources over a time period of 16 years. The financial performance of GIC Re is assessed using five standard ratios, and the uniformity of different financial performance indicators of GIC Re has been examined using Kendall’s Coefficient of Concordance (W). To assess the internal growth capacity of GIC Re internal growth rate has been used, and the likelihood of GIC Re going into financial distress is analysed using multivariate discriminant approach, namely, modified Altman’s Z-score model and logit analysis technique, namely, Ohlson’s O-score model.

The results exhibit that financial performance of GIC Re is somewhat satisfactory over a few considerable areas. However, no notable degree of uniformity has been observed amongst the varied financial performance indicators, namely, performance ratio, expense ratio, return on assets, risk retention ratio and combined ratio of GIC Re. The results also reveal GIC Re is lacking ability of growing internally. Moreover, there remains a significant possibility of GIC Re going into financial distress in the near future and so.

This study is one of the first empirical research studies in India that examines the financial performance of GIC Re from different perspectives.