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Distress Risk (distress + risk)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Does Financial Distress Risk Drive the Momentum Anomaly?

FINANCIAL MANAGEMENT, Issue 3 2008
Vineet Agarwal
This paper brings together the evidence on two asset pricing anomalies,continuation of prior returns (momentum) and the market mispricing of distressed firms,using UK data. Our analysis demonstrates both these effects are driven by market underreaction to financial distress risk. In particular, we find momentum is proxying for distress risk, and is largely subsumed by our distress risk factor. We also find, as with US studies, no evidence that size and book-to-market (B/M) effects in stock returns are linked to financial distress. [source]

Measuring Distress Risk: The Effect of R&D Intensity

THE JOURNAL OF FINANCE, Issue 6 2007
LAUREL A. FRANZEN
ABSTRACT Because of upward trends in research and development activity, accounting measures of financial distress have become less accurate. We document that (1) higher research and development spending increases the likelihood of misclassifying solvent firms, (2) adjusting for conservative accounting of research and development increases the number of correctly identified distressed firms, and (3) adjusted measures of distress alleviate previously documented anomalously low returns of large, high distress risk, low book-to-market firms. The results hold after updating stale parameters and under various tax assumptions. Our evidence raises concerns about interpretation of extant literature that relies on accounting measures of distress. [source]

Does Financial Distress Risk Drive the Momentum Anomaly?

FINANCIAL MANAGEMENT, Issue 3 2008
Vineet Agarwal
This paper brings together the evidence on two asset pricing anomalies,continuation of prior returns (momentum) and the market mispricing of distressed firms,using UK data. Our analysis demonstrates both these effects are driven by market underreaction to financial distress risk. In particular, we find momentum is proxying for distress risk, and is largely subsumed by our distress risk factor. We also find, as with US studies, no evidence that size and book-to-market (B/M) effects in stock returns are linked to financial distress. [source]

Measuring Distress Risk: The Effect of R&D Intensity

THE JOURNAL OF FINANCE, Issue 6 2007
LAUREL A. FRANZEN
ABSTRACT Because of upward trends in research and development activity, accounting measures of financial distress have become less accurate. We document that (1) higher research and development spending increases the likelihood of misclassifying solvent firms, (2) adjusting for conservative accounting of research and development increases the number of correctly identified distressed firms, and (3) adjusted measures of distress alleviate previously documented anomalously low returns of large, high distress risk, low book-to-market firms. The results hold after updating stale parameters and under various tax assumptions. Our evidence raises concerns about interpretation of extant literature that relies on accounting measures of distress. [source]

Industry Concentration and Average Stock Returns

THE JOURNAL OF FINANCE, Issue 4 2006
KEWEI HOU
ABSTRACT Firms in more concentrated industries earn lower returns, even after controlling for size, book-to-market, momentum, and other return determinants. Explanations based on chance, measurement error, capital structure, and persistent in-sample cash flow shocks do not explain this finding. Drawing on work in industrial organization, we posit that either barriers to entry in highly concentrated industries insulate firms from undiversifiable distress risk, or firms in highly concentrated industries are less risky because they engage in less innovation, and thereby command lower expected returns. Additional time-series tests support these risk-based interpretations. [source]