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Multiple states of financially distressed companies: Tests using a competing-risks model

journal contribution
posted on 2010-01-01, 00:00 authored by N Chancharat, Gang Tian, P Davy, M McCrae, S Lodh
This study examines the determinants of multiple states of financial distress by applying a competing-risks model. It investigates the effect of financial ratios, market-based variables and company-specific variables, including company age, size and squared size on three different states of corporate financial distress: active companies; distressed external administration companies; and distressed takeover, merger or acquisition companies. A sample of 1,081 publicly listed Australian non-financial companies over the period 1989 to 2005 using a competing-risks model is used to determine the possible differences in the factors of entering various states of financial distress. It is found that specifically, distressed external administration companies have a higher leverage, lower past excess returns and a larger size; while distressed takeover, merger or acquisition companies have a lower leverage, a higher capital utilisation efficiency and a larger size compared to active companies. Comparing the results from both the single-risk model and the competing-risks model reveals the need to distinguish between financial distress states.

History

Journal

Australasian accounting, business and finance journal

Volume

4

Issue

4

Pagination

27 - 44

Publisher

University of Wollongong, School of Accounting and Finance

Location

Wollongong, N. S. W.

ISSN

1834-2000

eISSN

1834-2019

Language

eng

Publication classification

C Journal article; C1.1 Refereed article in a scholarly journal

Copyright notice

2010, University of Wollongong, School of Accounting and Finance

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