Insolvency Detection Using Publicly-Traded Debt and Equity

AIRA Journal, 32(2), 11-15 (2019).

6 Pages Posted: 23 Nov 2019

See all articles by J.B. Heaton

J.B. Heaton

One Hat Research LLC; J.B. Heaton, P.C.

Date Written: November 12, 2019

Abstract

That solvency testing is difficult is nothing new. Commentators in a 1929 Columbia Law Review article lamented that “courts have not yet developed any clear-cut principles or rules” for solvency testing.Seventy-five years later, Delaware’s Court of Chancery complained that “it is not always easy to determine whether a company even meets the test for solvency.” More than a decade after that, courts still struggle to detect insolvency reliably. This article presents a simple method of detecting balance-sheet insolvency at a publicly traded firm. The method provides guidance for using financial-market evidence, even when it is incomplete in some respects.

Suggested Citation

Heaton, J.B., Insolvency Detection Using Publicly-Traded Debt and Equity (November 12, 2019). AIRA Journal, 32(2), 11-15 (2019).. Available at SSRN: https://ssrn.com/abstract=3485648

J.B. Heaton (Contact Author)

One Hat Research LLC ( email )

20 West Kinzie
17th Floor
Chicago, IL 60654
United States
312-257-3900 (Phone)

HOME PAGE: http://onehatr.com

J.B. Heaton, P.C. ( email )

Chicago, IL
United States
(312) 487-2600 (Phone)

HOME PAGE: http://jbheaton.com

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