A financial market can be expressed in a network structure where the stocks resides as nodes and the links account for returns correlation. Centrality measure in the financial network structure captures firms' embeddedness and connectivity in the capital market structure. This paper investigates...

We examine the impact of the unobservable systematic risk factor on default prediction model performance. We find that including the unobservable systematic risk factor might help improve predictive accuracy, but it might not help improve rank ordering of firms by default risk. Rank ordering is...

This paper offers a novel framework, combining firm operational risk, IPO pricing risk, and market risk, to model IPO failure risk. By analyzing nearly a thousand variables, we observe that prior IPO failure risk models have suffered from a major missing-variable problem. Evidence reveals...

Upstream producers that possess market power, sell forwards with a lengthy duration to regional electricity companies (REC). As part of the liberalization of the electricity market, RECs have been privatized and exposed to a possible bankruptcy threat if spot prices have fallen below their...

Using Ohlson's (1980) measure of bankruptcy risk (O-Score), Dichev (1998, The Journal of Finance 53, 1131−1147) documents a bankruptcy risk anomaly in which firms with high bankruptcy risk earn lower than average returns. This study first demonstrates that the negative association between...

Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between Merton-type and Black-Cox-type structural default models. Our...

Traditional firm valuation discounts forecasted cash consequences that are understood as expected values under some scenario. It is not clear how, and to what extent, uncertainty is incorporated in the valuation. This paper constructs a new valuation model where uncertainty, in particular,...

We examine how firm characteristics, particularly the degree of firm complexity and the firm's need for specialty knowledge, affect the relationship between corporate governance and the risk of bankruptcy. We find that having larger boards reduces the risk of bankruptcy only for complex firms....

We study the endogenous determination of corporate debt maturity in a setting with default risk. We assume that firms must access the bond market and they issue debt with a flexible structure (coupon, face value, and maturity). Initially, the firm is in a low growth/illiquid state that requires...