Are firms with negative book equity in financial distress?
© 2015 World Scientific Publishing Co. and Center for Pacific Basin Business, Economics and Finance Research. This study examines whether negative book equity (BE) firms are in financial distress by analyzing their operating performance, financial characteristics, distress risk, and survivability when they first report negative BE. Firms with small magnitude of negative BE (SNBE firms) suffer from persistent negative earnings and financial distress, while firms with large magnitude of negative BE (LNBE firms) experience a temporary non-distress related earnings shock. LNBE firms report consecutive years of negative BE, but have lower distress risk and failure rate than both SNBE and control firms. However, all negative BE stocks have abysmal returns subsequent to their first report of negative BE.
History
Journal
Review of pacific basin financial markets and policiesVolume
18Pagination
1-41Location
Singapore, AsiaPublisher DOI
ISSN
0219-0915Language
engPublication classification
C1 Refereed article in a scholarly journal, C Journal articleCopyright notice
2015, World Scientific PublishingIssue
3Publisher
World Scientific PublishingUsage metrics
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