*The authors are respectively, Associate Professor of Finance at the University of South Gzrolina, Columbia, and Associate Professor of Accounting at the U i e s t of Delaware, Newark. (Paper received August 1979, revised February nvriy 1980) Journal of Business Finance & Accounting 7,3(1980) In general a financial bath, as employed in the American literature, refers to the discretionary management act of initiating a âcleansingâ of the asset side of the balance sheet by writing off, or down, as many charges against future income as is possible. Management can be expected to take a financial bath in a period when there is little or no disutility for increasing losses or decreasing income. After all of the effects of the bath have been reported, the TSP of future income might be expected to be generated by a process similar to the one existing before the occurrence of the bath. Additional evidence on the contribution to predictive ability by a new observation is obtained by determining the duration and stability of the TSP generating the observation. If the underlying TSP is changing, the contribution to predictive ability of future income provided by each successive observation in the series will
Journal of Business Finance & Accounting – Wiley
Published: Sep 1, 1980
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