Voluntary Going Concern Disclosure and Bankruptcy Planning

Even before the FASB issued the final standard requiring management to assess and disclose the firm's ability to continue as a going concern, many firms voluntarily disclosed going concern doubts prior to bankruptcy. To better understand these disclosure decisions, I hypothesize and test the relation between a firm's decision to voluntarily disclose going concern doubts and relevant firm characteristics. I find that firms which increase their reliance on secured loans are more likely to disclose doubts of going concern with their auditors compared to those firms that disclose by themselves and those firms that do not disclose. I also find that firms with higher levels of unsecured loans, those who execute prepackage bankruptcy strategies, and those that have a lower analyst following are more likely to disclose doubts of going concern by themselves compared to firms that do not disclose. Finally, I find that auditors can potentially provide expertise and assistance to management in making a more timely going concern disclosure.