FASB 95, Cash Flow and bankruptcy

In this paper, the authors evaluate the effectiveness of Statement of Cash Flows measures in the classification and prediction of bankruptcy. The problems of biased estimators and bankruptcy probabilities and of optimal cut-off rates are addressed by using a large random sample and conditional marginal probability density functions. It is found that cashflow variables provide statistically better classification and prediction rates when used with traditional accounting variables when bankruptcy is defined as a Chapter 11 filing.