scholarly journals The Relation Between Disaggregated Re-structuring Charges And Stock Returns: The Effects Of Financial Distress

2011 ◽  
Vol 20 (2) ◽  
Author(s):  
Darlene Anderson ◽  
Carol Callaway Dee
Keyword(s):  
Stock Returns ◽  
Financial Distress ◽  
Operating Performance ◽  
Font Size ◽  
Positive Signal ◽  
Distressed Firms ◽  
Financially Distressed ◽  
Restructuring Charges ◽  
Restructuring Charge

<p class="MsoBlockText" style="margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><em><span style="font-family: Times New Roman;">We examine the relation between restructuring charge components and stock returns for firms reporting restructuring charges in the year disaggregated component disclosure became mandatory. We find significant coefficients on disaggregated components of restructuring charges in a regression of returns on earnings, earnings changes, and restructuring charge components. We provide evidence that for firms that exhibit signs of financial distress, aggregate restructuring charges, as well as the disaggregated components of restructuring charges, are priced differently than they are for financially healthy firms. Results suggest that for financially distressed firms, investors perceive supplemental disclosure as a positive signal of the firm&rsquo;s future operating performance, and view negatively a disclosure that lacks detail and/or clarity.<span style="mso-spacerun: yes;">&nbsp; </span></span></em></span></p>

Financial Distress, Earnings Benchmark and Earnings Management Practices

2021 ◽  
pp. 097226292110109
Author(s):  
Karan Gandhi
Keyword(s):  
Panel Data ◽  
Earnings Management ◽  
Financial Distress ◽  
Management Practices ◽  
Real Earnings Management ◽  
Public Companies ◽  
Large Panel ◽  
Distressed Firms ◽  
Contradictory Evidence ◽  
Financially Distressed

Prior research exhibits contradictory evidence on earnings management practices, both accrual and real, undertaken by the firms in state of financial distress. This study uniquely examines the issue in the presence of earnings-increasing earnings management motivation- meeting earnings benchmark of avoiding losses. For examining the issue, this study analyzes large panel data of Indian public companies for the period 2000–2016. The findings indicate prevalence of earnings-decreasing real earnings management practices, that is, decrease in overproduction and increase in spending on discretionary expenses, in financially distressed firms despite there being motivation to increase earnings to avoid losses. No evidence of accrual earnings management practices has been observed in such firms.

scholarly journals Financially Distressed Firms: Environmental, Social, and Governance Reporting in Indonesia

2021 ◽  
Vol 13 (18) ◽  
pp. 10156
Author(s):  
Iman Harymawan ◽  
Fajar Kristanto Gautama Putra ◽  
Bayu Arie Fianto ◽  
Wan Adibah Wan Ismail
Keyword(s):  
Financial Distress ◽  
General Information ◽  
Disclosure Quality ◽  
Exact Matching ◽  
Coarsened Exact Matching ◽  
Distressed Firms ◽  
Financially Distressed ◽  
Two Stages ◽  
Rolling Windows ◽  
The Relationship

This study examines the relationship between financial distress and environmental, social, and governance (ESG) disclosure. We hypothesize that financially distressed firms are tempted to enhance ESG disclosure as it provides higher performance in terms of financial and market perspectives. ESG disclosure needs substantial resources, which financially distressed firms may not be able to provide. In Indonesian settings, we find that financially distressed firms have lower ESG disclosure quality than non-distressed firms. Our results are robust due to lagged variable, Heckman’s two stages, and coarsened exact matching regression showing consistent results. Furthermore, our results are consistent with three years of rolling windows of financial distress and all sections of ESG reporting, except the general information section. This study extends the scope of prior studies by focusing on firms’ eagerness to provide higher quality ESG disclosure, particularly distressed firms.

scholarly journals Cash Flow Information And The Prediction Of Financially Distressed Mining, Oil And Gas Firms: A Comparative Study

2011 ◽  
Vol 10 (3) ◽  
pp. 78 ◽  
Author(s):  
Terry J. Ward
Keyword(s):  
Comparative Study ◽  
Cash Flow ◽  
Financial Distress ◽  
Oil And Gas ◽  
Cash Flows ◽  
Distressed Firms ◽  
Flow Information ◽  
Financially Distressed ◽  
Oil And Gas Firms

<span>This study tests whether cash flow information is more useful to creditors in predicting financially distressed mining, oil and gas firms than it is in predicting financial distress in other industries. The results of this study suggest that cash flows are more useful to creditors in predicting financially distressed mining, oil and gas firms than they are predicting financially distressed firms in other industries. Results also show that different cash flows are useful in predicting financial distressed mining, oil and gas firms than are useful in predicting financially distressed control firms.</span>

scholarly journals Investigating the Simultaneity of Corporate Hedging and Debt Policies: Empirical Evidence from Indonesia

2005 ◽  
Vol 7 (2) ◽  
pp. 179 ◽  
Author(s):  
Iman Sofian Suriawinata
Keyword(s):  
Financial Distress ◽  
Primary Objective ◽  
Corporate Hedging ◽  
Listed Firms ◽  
Distressed Firms ◽  
Financially Distressed ◽  
Tax Benefits ◽  
Debt Capacity ◽  
Pooled Sample ◽  
Debt Policies

The primary objective of this paper is to investigate the simultaneity of corporate hedging and debt policies. Using a pooled sample of Indonesian non-financial listed firms covering the periods of 1996-2001, the present study finds evidence that corporate hedging and debt policies are simultaneously determined. That is, the use of debts motivate firms to hedge; but simultaneously, hedging increases debt capacity and induces firms to borrow more in order to take advantage of the tax benefits arising from additional debt capacity. Another important finding is that financially distressed firms –as indicated by their debt restructuring programs– are less motivated to hedge, because such firms will see that the option values of their equity will increase as their cash-flow volatilities increase. Therefore, financially distressed firms tend not to hedge; or at least, hedge lesser compared to those of firms that do not experience financial distress.

Financial distress, corporate takeovers and the distress anomaly

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Steven E. Kozlowski ◽  
Michael R. Puleo
Keyword(s):  
Financial Distress ◽  
Design Methodology ◽  
Operating Performance ◽  
State Level ◽  
Agency Conflicts ◽  
Content Type ◽  
Corporate Takeovers ◽  
Predictive Regressions ◽  
Failure Risk ◽  
Distressed Firms

PurposeThis paper examines the relation between takeover likelihood and the documented underperformance of distressed company stocks while exploring two competing hypotheses. The failure risk explanation predicts lower returns to distressed firms with high probability of being acquired because the acquisition reduces risk and investors' required return. Conversely, the agency conflicts explanation predicts lower returns when acquisition is unlikely.Design/methodology/approachThe likelihood of receiving a takeover bid is estimated, and portfolio tests explore the underperformance of distressed company stocks relative to non-distressed stocks across varying levels of takeover likelihood. Predictive regressions subsequently examine the relation between distress, takeover exposure and future firm operating performance including how the relation is affected by state anti-takeover laws.FindingsDistressed stocks underperform non-distressed company stocks by economically and statistically significant margins when takeover likelihood is low, yet there is no evidence of underperformance among distressed stocks with moderate or high takeover exposure. Consistent with agency conflicts playing a key role, distressed firms that are disciplined by takeover threats invest more, use more leverage and experience higher future profitability. State-level anti-takeover legislation limits this disciplinary effect, however.Originality/valueThe results show that the well-documented distress anomaly is driven by a subset of distressed firms whose managers face limited pressure from the external takeover market. The evidence casts doubt on the failure risk explanation and suggests that agency conflicts play a key role.

scholarly journals Is The Scaling Measure Used For Cash Flows Important In Predicting Financially Distressed Firms?

2011 ◽  
Vol 9 (4) ◽  
pp. 134 ◽  
Author(s):  
Terry J. Ward
Keyword(s):  
Cash Flow ◽  
Financial Distress ◽  
Predictive Ability ◽  
Cash Flows ◽  
Financial Distress Prediction ◽  
Distress Prediction ◽  
Distressed Firms ◽  
Financially Distressed ◽  
Statement Of Cash Flows ◽  
Operating Activities

This paper attempts to determine whether the measure used to scale the three net cash flows reported on a statement of cash flows affects binary financial distress prediction results. The results of this study suggest that the scaling measure used does affect the incremental predictive ability of each cash flow. Results indicate that tone should scale cash flow from operating activities by current assets, cash flow from investing activities by sales, and cash flow from operating activities by owners equity.

Managerial Ability, Financial Distress, and Audit Fees

2017 ◽  
Vol 32 (1) ◽  
pp. 29-51 ◽  
Author(s):  
Ferdinand A. Gul ◽  
Mehdi Khedmati ◽  
Edwin KiaYang Lim ◽  
Farshid Navissi
Keyword(s):  
Financial Reporting ◽  
Financial Distress ◽  
Audit Fees ◽  
Managerial Ability ◽  
Accrual Quality ◽  
Distressed Firms ◽  
Financially Distressed ◽  
The Relationship

SYNOPSIS This study examines whether the relationship between managerial ability and audit fees is conditional on financial distress. We find that higher managerial ability increases audit fees in financially distressed firms and decreases audit fees in non-distressed firms. We also observe that financially distressed firms with higher-ability managers display lower accrual quality and a higher likelihood of restatement. Moreover, higher-ability managers in distressed firms engage more in opportunistic financial reporting to concurrently maximize equity-based compensation and cope with debt refinancing pressures, which increases audit risks and results in greater audit fees. We confirm our results using a battery of sensitivity and additional analyses.

scholarly journals Corporate Governance and Earnings Management: The Role of Board of Directors and Audit Committee in Financially Distressed Firms

2020 ◽  
Vol 3 (1) ◽  
pp. 113
Author(s):  
Emita W. Astami ◽  
Rusmin Rusmin
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Board Of Directors ◽  
Financial Distress ◽  
Audit Committee ◽  
Management Practices ◽  
Positive Role ◽  
Cross Sectional ◽  
Distressed Firms ◽  
Financially Distressed

This study investigates the association between corporate governance and earnings management practices of Australian’s financially distressed firms. Based on a sample of 164 firm-year incorporating non-financial firmsexperiencing financial distress, the cross-sectional modified Jones (1991) model is used to measure discretionary accruals (the proxy for earnings management). Board of directors and audit committee characteristic variables are employed as the key predictor variables for measuring the effectiveness of corporate governance. This study finds that the companies are seeking to reduce their reported earnings to increase the likelihood of making a profit in the following year with the goal of avoiding bankruptcy;a larger number of directors on a board is less effective in detecting and constraining the practices of earnings management by managers of distressed firms; an active audit committee plays a positive role in detecting and reducing the probability of earnings management. The findings of this study have implications especially to regulators and corporate governance reformists that determine corporate governance rules. This is primarily in regard to the efforts made by listed companies in maintaining their sustainability through more emphases on the process for monitoring and selection of board of directors and audit committee members to reinforceeffectiveness in managerial performance evaluation.

Earnings Management Response to Debt Covenant Violations and Debt Restructuring

2002 ◽  
Vol 17 (4) ◽  
pp. 295-324 ◽  
Author(s):  
Bikki Jaggi ◽  
Picheng Lee
Keyword(s):  
Earnings Management ◽  
Financial Distress ◽  
Discretionary Accruals ◽  
Debt Restructuring ◽  
Distressed Firms ◽  
Debt Covenant ◽  
Financially Distressed ◽  
Covenant Violations

The study investigates whether the choice of income-increasing or income-decreasing discretionary accruals is related to the severity of financial distress and whether this choice is also influenced by the creditors' waivers of debt covenant violations. Financially distressed firms experiencing debt covenant violations and/or debt restructuring during the 1989–96 period are used to evaluate the management's choice of discretionary accruals. Discretionary accruals are calculated based on four different accrual models. The results show that managers of financial distressed firms use income-increasing discretionary accruals if they are able to obtain waivers for debt covenant violations, and use income-decreasing discretionary accruals if debt restructuring takes place or debts are renegotiated because waivers are denied. These findings thus provide support to the expectation that the choice of income-increasing or -decreasing discretionary accruals is influenced by the severity of financial distress. They also provide an explanation for divergence in the results of earlier studies on the use of income-increasing or -decreasing discretionary accruals by financially distressed firms.

scholarly journals Is Bankruptcy Risk a Systematic Risk? Evidence from Pakistan Stock Exchange

ETIKONOMI ◽  
2020 ◽  
Vol 19 (1) ◽  
pp. 51-62
Author(s):  
Imran Umer Chhapra ◽  
Iffat Zehra ◽  
Muhammmad Kashif ◽  
Raja Rehan
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Financial Distress ◽  
Default Risk ◽  
Stock Price ◽  
Stock Exchange ◽  
Systematic Risk ◽  
Cross Sectional ◽  
Bankruptcy Risk ◽  
Distressed Firms

This study empirically investigates the relationship between default risk and cross-section of stock returns in the Pakistan Stock Exchange (PSX). Stock price data from all listed and delisted companies use to calculate monthly returns from 2001-2016. Ohlson's O-score is employed to measure exposure of firm to systematic deviation within bankruptcy risk. Besides, asset-pricing models like the Capital Asset Pricing Model (CAPM) and Fama French (FF) models are employed. Portfolios are sorted in deciles by default probability. This result finds that stocks of firms significantly exposed to not diversified Default Risk yield higher returns. Besides that, the FF models explain cross-sectional stock returns since factors incorporate information on financial distress and default. After that, the book-to-market equity factor is not significant in elucidating returns of distressed firms because of market inefficiency. Results have practical implications for portfolio managers and investors of an emerging economy in developing diversified portfolios during periods of uncertainty and market volatility.JEL Classifications: G12, G15, G33How to Cite:Chhapra, I. U., Zehra, I., Kashif, M., & Rehan, R. (2020). Is Bankruptcy Risk a Systematic Risk? Evidence from Pakistan Stock Exchange. Etikonomi: Jurnal Ekonomi, 19(1), 51 – 62. https://doi.org/10.15408/etk.v19i1.11248.

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