The purpose of this study is to establish empirical proxies for the economic viability of firms in financial distress and to ascertain their role in reorganization policy. The data suggest that firms with stronger pre-bankruptcy operating performance, higher pre-bankruptcy leverage, and higher...

The purpose of the present study is to investigate whether information can partly explain the price increases associated with the S&P 500 Index additions. We examine the earnings performance of newly added firms for the period after additions. Firms newly added to the S&P Index do not exhibit an...

Within diversified firms, the negative impact of leverage on investment is significantly greater for high q than for low q segments, and significantly greater for non-core than for core segments. This is consistent with the view that diversified firms allocate a disproportionate share of their...

We study 130 large asset downsizings in 1985-1994. We find that downsizings are most often accomplished by selling assets. The decision to downsize is negatively related to operating performance at both the firm and industry levels and is positively related to firm debt ratio and level of...

We report that 31% of the firms completing leveraged recapitalizations between 1985 and 1988 subsequently encounter financial distress. Following their recaps, the distressed firms exhibit (1) poor operating performance due largely to industry-wide problems, (2) surprisingly low proceeds from...

Using a sample of 224 Chapter 11 filings reported from 1985-1994, we relate operating and financial characteristics to the decision to reorganize in Chapter 11 and to measures of success following reorganization. We find that reorganization success is related to firm profitability measured as of...

We provide evidence on the agency cost explanation for corporate diversification. We find that the level of diversification is negatively related to managerial equity ownership and to the equity ownership of outsideblockholders. In addition, we report decreases in diversification are associated...

We report a significant negative relation between the fractional equity ownership of top executives and the likelihood of top management turnover. In addition, the relation between prior firm performance and the likelihood of turnover is statistically insignificant for firms in which the top...

We find that among firms that file Chapter 11 those that are smaller, have better operating performance, and are in higher-operating-margin industries spend less time in Chapter 11. Firms are more likely to emerge as going concerns and to achieve positive post-reorganization profitability if...

Prior studies of stocks added to the Samp;P 500 Index report that Index inclusion is associated with a permanent increase in stock price. This result has been interpreted to mean that demand curves for stocks slope downward. A key premise underlying this interpretation is that Index inclusion...