The Accounting Review Vol. 90 No. 4 2015
MD&A Disclosure and the Firm's Ability to Continue as a Going Concern
Abstract
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.
- DOI
- 10.2308/accr-50983
- Volume
- 90
- Issue
- 4
- Pages
- 1621-1651
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref