Do narrative-related disclosures predict corporate failure? Evidence from UK non-financial publicly quoted firms

Mohamed Elsayed and Tamer Elshandidy

International Review of Financial Analysis, 2020, vol. 71, issue C

Abstract: By creating a comprehensive corporate failure-related lexicon, this paper explores the incremental explanatory power of narrative-related disclosures in predicting corporate failure. We find that corporate failure-related narrative disclosures significantly predict firms' failure up to two years ahead of actual failure. Additionally, we find that a financially distressed firm would become more vulnerable when financial constraints befall, which in turn would precipitate corporate failure. Various robustness tests assure the credibility of the explanatory ability of corporate failure-related narrative disclosures to predict corporate failure. Collectively, our results show the feasibility of these narrative-related disclosures in improving the explanatory power of models that predict corporate failure.

Keywords: Bankruptcy; Corporate failure; Financial distress risk; Narrative-related disclosures; UK (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:71:y:2020:i:c:s105752192030199x

DOI: 10.1016/j.irfa.2020.101555

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