Insolvency Detection Using Publicly-Traded Debt and Equity

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

5 Pages Posted: 23 Nov 2019 Last revised: 8 Apr 2023

Date Written: November 12, 2019


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:

J.B. Heaton (Contact Author)

One Hat Research LLC ( email )

Chicago, IL
United States


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