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Are firms with negative book equity in financial distress?

journal contribution
posted on 2015-01-01, 00:00 authored by Tze AngTze Ang
© 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 policies

Volume

18

Pagination

1-41

Location

Singapore, Asia

ISSN

0219-0915

Language

eng

Publication classification

C1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2015, World Scientific Publishing

Issue

3

Publisher

World Scientific Publishing