What is Default

This work aims to understand the signs of default of companies in the plastic sector by analyzing several financial ratios. Moreover, it is intended to understand if earnings management practices impact companies' probability of default. A sample of 718 Portuguese companies from the plastic sector from 2012 to 2018 is analyzed. In a univariate analysis, results suggest that default companies engage more in earnings management practices through accruals, while compliant companies use real activities. In a multivariate analysis, results show that earnings management practices impact companies' probability of default suggesting that these practices create bias in companies' decision process, which contributes to an increase in uncertainties and the probability of bankruptcy. The main results are relevant to explain the problems of earnings management practices, special to companies' survival and sustainability, and are also important to detect signs in advance to avoid uncertainties.