A Brattle-authored article has been selected for inclusion in the American Bankruptcy Institute’s (ABI’s) Best of ABI 2022: The Year in Business Bankruptcy. Each year, the “Best of ABI” books seek to gather the best ABI Journal articles to highlight the top trends in both business and consumer bankruptcy.
The article, “Solvency Shortcuts: The Use and Misuse of Simple Tools for Predicting Financial Distress,” was authored by Brattle Senior Associate Dr. Adrienna Huffman, Principal David Plastino, and former Brattle Associate Nitin Bajaj and published in the May 2022 edition of the ABI Journal. In the article, the authors review various solvency shortcut measures –including the Altman Z-Score – and conduct an empirical analysis to assess the ability of these measures to predict future insolvency. In their review, the authors found that, while bankruptcy shortcut measures are predictive of insolvency, no single measure is perfect, and the predictive power of the different methods depends on each company’s characteristics. Although the simplicity of using a single ratio or metric can be advantageous, analyzing multiple metrics as a best practice will likely lead to more robust predictions.
The full Best of ABI 2022: The Year in Business Bankruptcy can be found below.