Liquidity ratios and corporate failures

Abstract One of the most widespread claims in financial statement analysis is that liquidity ratios are useful for predicting failures. However, academic research has found surprisingly little empirical support this claim. Using logistic regression splines, a non‐parametric method, paper finds relation between current ratio and failures differs significantly depending on level ratio. At low, but not high levels, negatively related to failure. Incorporating such context provides statistically economically significant predictive power about These findings help resolve discrepancy practitioners literature.