Reuters
Audit Integrity Announces Results of Corporate Bankruptcy Study; Identifies Companies Most Likely to Declare Bankruptcy
written by Jeffrey Richardson, Starkman & Associates
Wednesday September 16, 2009 9:00am EDT
Media and Transportation Sectors Have the Highest Number of Companies at Risk
LOS ANGELES--(Business Wire) -- In response to amplified concern in the market for risk related to corporate insolvency, Audit Integrity, an independent financial research and risk modeling firm, today released the results of its bankruptcy model research and has identified 20 corporations, with $1 billion or more in market capitalization, that have the highest probability of declaring bankruptcy in the next twelve months.
According to the U.S. Bankruptcy Courts, the number of business bankruptcy filings during the first six months of the year rose 64 percent over the first half results in 2008. With the increased incidence of company failures, corporate stakeholders such as insurance companies, auditing professionals, procurement executives and regulators, find corporate survival to be a critical risk issue.
Current approaches to determining bankruptcy risk generally fail to react quickly to changes to the economic environment, and do not factor in the potential for corporate fraud. By incorporating these risk factors into the Audit Integrity Business Risk Model, this new approach has been found to greatly improve the identification of companies at risk of bankruptcy. Against the most widely used bankruptcy model, the Altman Z-Score, the Audit Integrity bankruptcy Risk Model results have been more than 20 percentage points higher in predicting bankruptcy.
The results from Audit Integrity`s bankruptcy research indicate that the media and transportation industries are especially vulnerable. Of the over 2,500 U.S. corporations receiving bankruptcy risk scores from Audit Integrity, TV and Publishing companies were found to be over four times as risky as other companies, while automobile and airline industries were just slightly less risky.
The findings suggest that fraudulent accounting and poor governance impact bankruptcy risk in addition to more generally accepted factors such as measures of liquidity, leverage and profitability.
"Evidence shows that bankruptcy filings tend to lag after an economic downturn so its extremely important that investors and those concerned with the risks around corporate failure mitigate their exposure to companies likely to collapse," said Jack Zwingli, CEO of Audit Integrity. "Market volatility and sudden downturns such as we have been experiencing must be factored into bankruptcy risk. Fraud also plays a part, especially when companies are faced with survival decisions. These are the toughest companies to identify because, on paper, they appear solvent. Our model uncovers the underlying fraud that can be behind seemingly healthy financial statements."
Audit Integrity has identified the following companies that have the highest probability of declaring bankruptcy among publicly traded firms with more than $1 billion market capitalizations:
Audit Integrity Announces Results of Corporate Bankruptcy Study; Identifies Companies Most Likely to Declare Bankruptcy
written by Jeffrey Richardson, Starkman & Associates
Wednesday September 16, 2009 9:00am EDT
Media and Transportation Sectors Have the Highest Number of Companies at Risk
LOS ANGELES--(Business Wire) -- In response to amplified concern in the market for risk related to corporate insolvency, Audit Integrity, an independent financial research and risk modeling firm, today released the results of its bankruptcy model research and has identified 20 corporations, with $1 billion or more in market capitalization, that have the highest probability of declaring bankruptcy in the next twelve months.
According to the U.S. Bankruptcy Courts, the number of business bankruptcy filings during the first six months of the year rose 64 percent over the first half results in 2008. With the increased incidence of company failures, corporate stakeholders such as insurance companies, auditing professionals, procurement executives and regulators, find corporate survival to be a critical risk issue.
Current approaches to determining bankruptcy risk generally fail to react quickly to changes to the economic environment, and do not factor in the potential for corporate fraud. By incorporating these risk factors into the Audit Integrity Business Risk Model, this new approach has been found to greatly improve the identification of companies at risk of bankruptcy. Against the most widely used bankruptcy model, the Altman Z-Score, the Audit Integrity bankruptcy Risk Model results have been more than 20 percentage points higher in predicting bankruptcy.
The results from Audit Integrity`s bankruptcy research indicate that the media and transportation industries are especially vulnerable. Of the over 2,500 U.S. corporations receiving bankruptcy risk scores from Audit Integrity, TV and Publishing companies were found to be over four times as risky as other companies, while automobile and airline industries were just slightly less risky.
The findings suggest that fraudulent accounting and poor governance impact bankruptcy risk in addition to more generally accepted factors such as measures of liquidity, leverage and profitability.
"Evidence shows that bankruptcy filings tend to lag after an economic downturn so its extremely important that investors and those concerned with the risks around corporate failure mitigate their exposure to companies likely to collapse," said Jack Zwingli, CEO of Audit Integrity. "Market volatility and sudden downturns such as we have been experiencing must be factored into bankruptcy risk. Fraud also plays a part, especially when companies are faced with survival decisions. These are the toughest companies to identify because, on paper, they appear solvent. Our model uncovers the underlying fraud that can be behind seemingly healthy financial statements."
Audit Integrity has identified the following companies that have the highest probability of declaring bankruptcy among publicly traded firms with more than $1 billion market capitalizations:
- Advanced Micro Devices, Inc.
- Amkor Technology, Inc.
- AMR Corporation
- Apartment Investment and Management Co.
- CBS Corporation
- Continental Airlines, Inc.
- Federal-Mogul Corporation
- Hertz Global Holdings, Inc.
- Interpublic Group of Companies, Inc.
- Las Vegas Sands Corp.
- Liberty Media Corporation (Capital)
- Macy's, Inc.
- Mylan Inc.
- Oshkosh Corporation
- Redwood Trust, Inc.
- Rite Aid Corporation
- Sirius XM Radio Inc.
- Sprint Nextel Corporation
- Textron Inc.
- The Goodyear Tire & Rubber Company
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