MD&A disclosure and the firm's ability to continue as a going concern

Journal Article (Journal Article)

This paper explores the role of textual disclosures in the Management, Discussion, and Analysis (MD&A) section of a firm's SEC 10-K filing in predicting a firm's ability to continue as a going concern. Using a sample of firms that filed for bankruptcy between 1995 and 2012 to identify firms that cease as a going concern, we find that both management's opinion about going concern reported in the MD&A and the linguistic tone of the MD&A together provide significant explanatory power in predicting whether a firm will cease as a going concern. Moreover, the predictive ability of MD&A disclosure is incremental to financial ratios, market-based variables, and even the auditor's going concern opinion. We also find that the incremental predictive ability of MD&A disclosures extends to three years prior to bankruptcy.

Full Text

Duke Authors

Cited Authors

  • Mayew, WJ; Sethuraman, M; Venkatachalam, M

Published Date

  • July 1, 2015

Published In

Volume / Issue

  • 90 / 4

Start / End Page

  • 1621 - 1651

International Standard Serial Number (ISSN)

  • 0001-4826

Digital Object Identifier (DOI)

  • 10.2308/accr-50983

Citation Source

  • Scopus