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

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  • Daniel M. Bryan
  • Samuel L. Tiras
  • Clark M. Wheatley

Abstract

Prior research has shown that accounting information available prior to a bankruptcy is associated with the likelihood of bankruptcy. We show that additionally, the accounting information available prior to bankruptcy is associated with whether or not a firm will emerge from bankruptcy. We 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 support these predictions, but our findings differ across large and small firms.

Suggested Citation

  • Daniel M. Bryan & Samuel L. Tiras & Clark M. Wheatley, 2002. "The Interaction of Solvency with Liquidity and its Association with Bankruptcy Emergence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(7‐8), pages 935-965.
    • Handle: RePEc:bla:jbfnac:v:29:y:2002:i:7-8:p:935-965
    DOI: 10.1111/1468-5957.00456
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    Citations

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    Cited by:

    1. Ena Rose-Green & Linda Lovata, 2013. "The Relationship between Firms’ Characteristics in the Periods Prior to Bankruptcy Filing and Bankruptcy Outcome," Accounting and Finance Research, Sciedu Press, vol. 2(1), pages 1-97, February.
    2. Maria Jesus Segovia Vargas & Mara del Mar Camacho Miñano, 2018. "Analysis of corporate viability in the pre-bankruptcy proceedings," Contaduría y Administración, Accounting and Management, vol. 63(1), pages 29-30, Enero - M.
    3. Charitou, Andreas & Lambertides, Neophytos & Trigeorgis, Lenos, 2007. "Managerial discretion in distressed firms," The British Accounting Review, Elsevier, vol. 39(4), pages 323-346.
    4. Beiqi Lin & Chelsea Liu & Kelvin Jui Keng Tan & Qing Zhou, 2020. "CEO turnover and bankrupt firms’ emergence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1238-1267, October.
    5. Georgios Marinakos & Sophia Daskalaki & Theodoros Ntrinias, 2014. "Defensive financial decisions support for retailers in Greek pharmaceutical industry," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 22(3), pages 525-551, September.
    6. Maria Jesus Segovia Vargas & Mara del Mar Camacho Miñano, 2018. "Análisis de la viabilidad empresarial en el preconcurso de acreedores," Contaduría y Administración, Accounting and Management, vol. 63(1), pages 27-28, Enero - M.
    7. Gregory Kane & Frederick Richardson & Uma Velury, 2006. "The Relevance of Stock and Flow-Based Reporting Information In Assessing the Likelihood of Emergence from Corporate Financial Distress," Review of Quantitative Finance and Accounting, Springer, vol. 26(1), pages 5-22, February.
    8. Jiang-Chuan Huang & Hueh-Chen Lin & Daniel Huang, 2022. "The Effect of Operating Cash Flow on the Likelihood and Duration of Survival for Marginally Distressed Firms in Taiwan," Sustainability, MDPI, vol. 14(24), pages 1-20, December.

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