Abstract In this paper, we study whether the modified Jones’ earnings management model is suitable to the financial distress prediction and what effect is caused to financial distress prediction by the degree of earnings manangement. Firstly, we introduce earnings management theory into the area of financial distress prediction. Secondly, the feasibility that the modified Jones’ earnings management model is applied to financial distress prediction has been verified fundamentally through univariate analysis. Thirdly, we carry out an empirical study on the base of four driving indexex coming from Jones’ model, where both multivariate discrimination and logistic regression analysis methords are involved. These listed companies marked with *ST from 2006 to 2008 are chosed as samples in the emprical study. The research result indicates that the discretionary-accruds between normal companies and financial distress companies exists a siginificant difference. Additionally, modified Jones’ model can
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Received: 03 February 2010
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