Financial regulation and bankruptcy prediction: The informational value of auditor opinions

We test whether auditors’ Going-Concern Opinions (GCOs) provide incremental predictive content for corporate bankruptcy beyond analysts’ information and accounting- and market-based indicators. Using U.S. firm-year data from 1992–2018 and conditioning on analysts’ forecast bias, error, dispersion, and coverage, we find that GCO issuance is associated with a 20%–56% higher probability of bankruptcy. Adding GCOs to the model increases explanatory power by 12%–18%. Analyst bias and error are positively related to failure, while coverage is negatively related, indicating that auditors and analysts supply distinct, complementary signals. The evidence positions GCOs as economically meaningful state variables for default-risk models—rather than mere narrative disclosures—with particular value when analyst coverage is thin or forecast precision is weak. These findings have direct implications for policymakers, regulators and capital market participants.