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...

In recent years, a number of papers have established a new empirical regularity. Stocks of distressed firms vastly underperform those of financially healthy firms. It is not necessary to attribute the negative excess returns of distressed firms to inefficient or irrational markets. We show that...

Our study examines whether financial distress risk is systematic risk using twelve portfolios sorted by size, book-to-market, and leverage and a portfolio of distressed firms covering an 18-year period. It also tests the explanatory power of the risk factors that best capture default risk. The...

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...

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...

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...