'Going Concern' Analysis Is Bankruptcy Crystal Ball: Study

Law360, New York (August 22, 2013, 4:48 PM EDT) -- Companies are reasonably good predictors of their own bankruptcies, according to a study released Thursday that lends weight to an unpopular new accounting rule requiring management to discuss a company's insolvency risk in securities filings.

The study, conducted by accounting experts at Duke University, looked at the "management discussion and analysis" section of U.S. Securities & Exchange Commission filings for 262 companies that went bankrupt between 1995 and 2011. The researchers looked for either an explicit mention of insolvency or subtler language — words like "liquidate," "deficit" or "challenging" — that suggested a rocky future.

They found an 85 percent correlation,...

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