The Interaction of Solvency with Liquidity and its Association with Bankruptcy Emergence

37 Pages Posted: 20 Nov 1999

See all articles by Samuel L. Tiras

Samuel L. Tiras

Indiana University - Kelley School of Business

Daniel M. Bryan

State University of New York (SUNY) - Accounting & Law

Clark M. Wheatley

Florida International University

Multiple version iconThere are 2 versions of this paper

Date Written: October 6, 1999

Abstract

Prior research has shown that the accounting information available in the year just prior to filing bankruptcy is associated with the likelihood of filing for Chapter 11 protection. This information, however, is more predictive of bankruptcy for stressed firms than for non-stressed firms. We extend this line of research by showing that in addition to being associated with bankruptcy, the accounting information available in the year just prior to a firm filing for bankruptcy protection is also associated with whether or not a firm will emerge from Chapter 11 bankruptcy. We classify stress as either long-term stress (solvency risk) and short-term stress (liquidity risk) and predict that firms that exhibit low solvency risk and high liquidity risk are most likely to emerge from bankruptcy. Firms that exhibit high solvency risk and high liquidity risk are predicted to be least likely to emerge from bankruptcy. Cross-sectionally, our results generally support these predictions, but our findings differ across large and small firms.

JEL Classification: M41, G33

Suggested Citation

Tiras, Samuel L. and Bryan, Daniel M. and Wheatley, Clark M., The Interaction of Solvency with Liquidity and its Association with Bankruptcy Emergence (October 6, 1999). Available at SSRN: https://ssrn.com/abstract=189410 or http://dx.doi.org/10.2139/ssrn.189410

Samuel L. Tiras (Contact Author)

Indiana University - Kelley School of Business ( email )

801 W. Michigan Street
Indianapolis, IN 46202
United States
(317) 274-3420 (Phone)

Daniel M. Bryan

State University of New York (SUNY) - Accounting & Law ( email )

Buffalo, NY 14260
United States

Clark M. Wheatley

Florida International University ( email )

11200 SW 8th Street
MANGO 337
Miami, FL 33199
United States
305-348-4209 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
590
Abstract Views
3,771
rank
51,044
PlumX Metrics