In finance the proposition that market prices in company securities are efficient in respect of public information has received substantial confirmation over the years (Fama, 1970, 1976). Since efficiency means that there are no systematic trading rules which generate abnormal returns and since the public information concerned consists to a large extent of published accounting data, it is somewhat surprising to find that a stream of empirical work (e.g. Altman, 1971) using the same data claims to provide predictions of bankruptcy or quasi‐bankruptcy which are of considerable accuracy and usefulness.
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