MD&A Disclosure and the Firm's Ability to Continue as a Going Concern

Forthcoming in The Accounting Review

Posted: 31 May 2013 Last revised: 15 Apr 2018

See all articles by William J. Mayew

William J. Mayew

Duke University - Fuqua School of Business

Mani Sethuraman

Cornell University

Mohan Venkatachalam

Duke University - Fuqua School of Business

Date Written: October 26, 2014

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.

Keywords: Going concern, voluntary disclosure, FASB, PCAOB, auditor opinion, bankruptcy prediction

JEL Classification: M41

Suggested Citation

Mayew, William J. and Sethuraman, Mani and Venkatachalam, Mohan, MD&A Disclosure and the Firm's Ability to Continue as a Going Concern (October 26, 2014). Forthcoming in The Accounting Review. Available at SSRN: https://ssrn.com/abstract=2272463 or http://dx.doi.org/10.2139/ssrn.2272463

William J. Mayew

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7781 (Phone)
919-660-7971 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty/alpha/mayew.htm

Mani Sethuraman (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
2,793
PlumX Metrics