We document the negative effect of stock liquidity on default risk for a sample of 46 countries. We further find that default risk declines following the introduction of the Directive on Markets in Financial Instruments (MiFID)—an exogenous shock that increases liquidity. The effect of...

This study uses 469,816 monthly observations of US public firms for the period 1990-2018 to document a strong positive relationship between short-term changes in financial distress risk and future stock price crashes. This result is economically significant as a one interquartile increase of the...

We study the association between the stock liquidity of SMEs in the US and their likelihood of bankruptcy, using a dataset that comprises information on 5075 firms over the time period from 1984 to 2013 using the hazard model of Campbell et al. (2008). We find that less liquid stocks are...

Small and medium-sized enterprises (SMEs) are the backbone of the Asian economy. They make up more than 96% of all Asian businesses, providing two out of three private-sector jobs on the continent. Therefore, it is vital for Asian economies' economic success that they have fully functioning...

This study investigates the ability of three versions of Altman's Z-Score model (Z, Z', and Z”) of distress prediction developed in the U.S. to predict the corporate distress in the emerging market of Sri Lanka. The results show that these models have a remarkable degree of accuracy in...

Objective - This research analyses whether there was a change in bankruptcy risk of companies in Indonesia for the period between 2015–2018, during the first presidency period of Joko Widodo, when Indonesia experienced tremendous dynamic economic, political and technological change. Previous...

This study is motivated by the continuing popularity of the Altman Z-score as a measure of distress risk. Altman first introduced the ‘Z' score in 1968 and 50 years later it is still going strong as a means to predicting bankruptcy. During these 50 years, academicians have studied the...

It is well understood that the equity of an insolvent firm can trade for a positive price so long as there is some positive probability that the firm will become solvent at some future point. Currently, however, this insight exists in the case law in an informal sense, while its use in the...

We estimate and test several default risk models using new and unique data on corporate defaults in the German stock market. While defaults were extremely rare events in the 1990s, they have been a characteristic feature of the German stock market since the early 2000s. We apply the structural...

While empirical literature has documented a negative relation between default risk and stock returns, theory suggests that default risk should be positively priced. In this paper, we calculate monthly probabilities of default (PDs) for a large sample of European firms and break them down into...