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Cash Flow in Bankruptcy Prediction

Michael J. Gombola, Mark E. Haskins, J. Edward Ketz and David D. Williams
Financial Management
Vol. 16, No. 4 (Winter, 1987), pp. 55-65
Published by: Wiley on behalf of the Financial Management Association International
Stable URL: http://www.jstor.org/stable/3666109
Page Count: 11
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Cash Flow in Bankruptcy Prediction
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Abstract

Most previous studies of the influence of cash flow in bankruptcy prediction may be flawed because (1) they do not adjust for all accruals in deriving an estimate of cash flow from operations (CFFO), and (2) they do not isolate discrete time periods in which a cash flow effect may or may not be present. We isolate a period of time (1973-1981) in which a CFFO effect is possible. Even after this methodological improvement, it is found that CFFO is not a significant predictor of corporate bankruptcy.

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