scholarly journals How Does Bankruptcy Risk Affect Stock Values?

2011 ◽  
Vol 21 (4) ◽  
Author(s):  
John D. Neill ◽  
Glenn M. Pfeiffer
Keyword(s):  
Firm Value ◽  
Indirect Costs ◽  
Investment Horizon ◽  
Cross Sectional ◽  
Bankruptcy Risk ◽  
Book Value ◽  
Equity Values ◽  
Valuation Model ◽  
Probability Of Bankruptcy ◽  
Stock Values

<p class="rmnorm" style="text-align: justify; line-height: normal; margin: 0in 0.6in 0pt 0.5in; tab-stops: .5in; mso-hyphenate: auto;"><span style="letter-spacing: 0pt; font-size: 10pt; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">Research in corporate restructuring argues that the risk of bankruptcy reduces firm value by the present value of both the direct and indirect costs of bankruptcy.<span style="mso-spacerun: yes;">&nbsp; </span>Additionally, the potential for bankruptcy affects both the investment horizon of investors and the discount rate implicit in equity values.<span style="mso-spacerun: yes;">&nbsp; </span>This paper empirically examines the effect of cross-sectional differences in the probability of bankruptcy on the determinants of firm value.<span style="mso-spacerun: yes;">&nbsp; </span>We estimate bankruptcy probabilities for an extensive sample of more than 38,000 firm-year observations over a twelve-year period.<span style="mso-spacerun: yes;">&nbsp; </span>Using a valuation model that employs both book value and earnings, we provide empirical evidence that earnings multiples decrease as the estimated probability of bankruptcy increases.<span style="mso-spacerun: yes;">&nbsp; </span>These results imply that investors and analysts rely less on current earnings and more on book value (which proxies for the firm&rsquo;s liquidation value) as a firm&rsquo;s probability of bankruptcy increases. </span></span></p>

Implementing Residual Income Valuation With Linear Information Dynamics

1999 ◽  
Vol 74 (1) ◽  
pp. 1-28 ◽  
Author(s):  
James N. Myers
Keyword(s):  
Time Series ◽  
Firm Value ◽  
Residual Income ◽  
Accounting System ◽  
Information Dynamics ◽  
No Arbitrage ◽  
Book Value ◽  
Residual Income Valuation ◽  
Accounting Numbers ◽  
Linear Information

Residual income (RI) valuation is a method of estimating firm value based on expected future accounting numbers. This study documents the necessity of using linear information models (LIMs) of the time series of accounting numbers in valuation. I find that recent studies that make ad hoc modifications to the LIMs contain internal inconsistencies and violate the no arbitrage assumption. I outline a method for modifying the LIMs while preserving internal consistency. I also find that when estimated as a time series, the LIMs of Ohlson (1995), and Feltham and Ohlson (1995) provide value estimates no better than book value alone. By comparing the implied price coefficients to coefficients from a price level regression, I find that the models imply inefficient weightings on the accounting numbers. Furthermore, the median conservatism parameter of Feltham and Ohlson (1995) is significantly negative, contrary to the model's prediction, for even the most conservative firms. To explain these failures, I estimate a LIM from a more carefully modeled accounting system that provides two parameters of conservatism (the income parameter and the book value parameter). However, this model also fails to capture the true stochastic relationship among accounting variables. More complex models tend to provide noisier estimates of firm value than more parsimonious models.

Does Board Independence Increase Firm Value? Evidence from Closed-End Funds

2019 ◽  
pp. 1-24
Author(s):  
Matthew E. Souther
Keyword(s):  
Instrumental Variables ◽  
Firm Value ◽  
Board Independence ◽  
Difference In Differences ◽  
Cross Sectional ◽  
Closed End Funds ◽  
The Impact ◽  
New Evidence

Researchers disagree about the impact of board independence on firm value. The disagreement generally stems from the endogenous nature of board appointments. I add new evidence to this discussion by using a sample of closed-end funds to document the value-enhancing effects of independent boards. Using cross-sectional, difference-in-differences, and instrumental variables techniques, I address these endogeneity concerns and find consistent evidence that board independence is associated with higher firm value.

Buyer’s Bankruptcy Risk, Sourcing Strategy, and Firm Value: Evidence from the Supplier Protection Act

2021 ◽  
Author(s):  
Karca D. Aral ◽  
Erasmo Giambona ◽  
Ye Wang
Keyword(s):  
Operations Management ◽  
Financial Distress ◽  
Firm Value ◽  
Trade Credit ◽  
Treated Group ◽  
Control Group ◽  
Regulatory Change ◽  
Data Set ◽  
Bankruptcy Risk ◽  
Sourcing Strategy

What should a distressed buyer’s sourcing strategy be? We find that this depends on the dynamics in a potential in-court bankruptcy. To establish causality, we use a novel sourcing data set in combination with a unique quasi-natural experimental setting provided by a regulatory shock that significantly strengthened the protection granted to suppliers when a distressed buyer files for bankruptcy: the Supplier Protection Act. We find that, following this regulatory change, the number of suppliers for buyers near financial distress (those most affected by the act, the treated group) increased by nearly 35% relative to financially sound firms (the control group). We also find that this shift allowed distressed buyers to obtain more trade credit, expand inventory holdings, and increase performance, leading to an overall increase in firm value of 7.2%. In turn, these effects led to a sizable reduction in the probability of the affected buyers defaulting and filing for bankruptcy. Our results have important implications for corporate executives: right-sizing the supply base can be critical for buyers near financial distress, and implementing policies to engage and protect suppliers can be the way out of distress. This paper was accepted by Vishal Gaur, operations management.

scholarly journals Univariate associations between housing, management, and facility design factors and the prevalence of lameness lesions in fourteen small-scale dairy farms in Northeastern Algeria

2020 ◽  
Vol 13 (3) ◽  
pp. 570-578 ◽  
Author(s):  
Zoubida Dendani-Chadi ◽  
Khelaf Saidani ◽  
Loubna Dib ◽  
Fayçal Zeroual ◽  
Faouzi Sammar ◽  
...  
Keyword(s):  
Univariate Analysis ◽  
Indirect Costs ◽  
Dairy Farms ◽  
Site Investigation ◽  
Cross Sectional Study ◽  
Small Scale ◽  
Facility Design ◽  
Cross Sectional ◽  
Housing Management ◽  
Increased Risk

Background and Aim: This cross-sectional study aimed to analyze the associations between different types of housing, management, and facilities on the prevalence of lame, causing lesions in smallholder dairy farms in Algeria. Materials and Methods: The on-site investigation took place between December 2012 and May 2015. All cows were locomotion scored on a four-point scale, and foot lesions causing lame were diagnosed and recorded. Factors related to the farm and the cows' conditions were also assessed. The association between the possible risk factors and lame lesions was assessed using univariate analysis. Results: Of the 349 cows evaluated, 13% were lame (lameness score ≥2), with higher lameness values recorded for the hind feet than for the forefeet. Cows without lameness were classified as healthy. The two most frequent lesion diagnoses observed in lame cows were interdigital dermatitis/heel horn erosion (ID/HE; 39%) and interdigital phlegmon (IP; 35%), followed by traumatic lesions (T; 11%), digital dermatitis (DD; 8.7%), and laminitis-related diseases (L; 6.5%). The risk of being lame was increased in large herds with cows of the Holstein breed, and those in the third parity and above. Tie housing, concrete floor, concentrate feeding, zero-grazing, and the use of foot trimming occasionally were associated with increased risk for the presence of lame lesions. The region and footbathing frequency had no association with the prevalence of lame lesions (p≥0.05). Conclusion: These results have important implications; they indicate that several aspects of housing, management, and facility design are common protective factors for the prevalence of lame lesions. These factors should be maintained correctly to not only reduce the number of lame cows in these herds but also decrease the direct and indirect costs associated with cases of lameness.

scholarly journals Market concentration, corporate governance and innovation: Partial and combined effects in US-listed firms

2012 ◽  
Vol 1 (3) ◽  
pp. 199-215
Author(s):  
Mehmet Ugur ◽  
Nawar Hashem
Keyword(s):  
Corporate Governance ◽  
Robust Estimation ◽  
Market Concentration ◽  
Combined Effects ◽  
Cross Sectional ◽  
Book Value ◽  
Listed Firms ◽  
Innovation Research ◽  
Governance Indicators ◽  
The Relationship

Existing research on the relationship between market concentration and innovation has produced conflicting findings. In addition, the emerging literature on the relationship between corporate governance and innovation tends to focus only on partial effects of corporate governance on innovation. We aim to contribute to the debate by investigating both partial and combined effects of corporate governance and market concentration on innovation. Utilising a dataset for 1,400 non-financial US-listed companies and two-way cluster-robust estimation methodology, we report several findings. First, the relationship between market concentration and innovation is non-linear. Secondly, the relationship has a U-shape in the case of input measure of innovation (research and development - R&D – expenditures); but it has an inverted-U shape when net book-value of brands and patents is used as output measure of innovation. Third, corporate governance indicators such as anti-takeover defences and insider control tend to have a negative partial effect on R&D expenditures but a positive partial effect on net book-value of brands and patents. Finally, when interacted with market concentration, anti-takeover defences and insider control act as complements to market concentration. Hence, firms with strong anti-take-over defences and under insider control tend to spend more on R&D but are less able to generate valuable brands and patents as market concentration increases. These results are based on two-way cluster-robust estimation, which takes account of both serial and cross-sectional dependence in the error terms.

scholarly journals The Economic Burden of Coronavirus Disease 2019 (COVID-19): Evidence from Iran

2020 ◽  
Author(s):  
Mohsen Ghaffari Darab ◽  
Khosro Keshavarz ◽  
Elnaz Sadeghi ◽  
Javad Shahmohamadi ◽  
Zahra Kavosi
Keyword(s):  
Economic Burden ◽  
Indirect Costs ◽  
Premature Death ◽  
University Hospital ◽  
Fars Province ◽  
Income Loss ◽  
Cross Sectional ◽  
Accounting Information Systems ◽  
Economic Production ◽  
The Mean

Abstract This study aimed to estimate both direct medical and indirect costs of treating the Coronavirus disease 2019 (COVID-19) from a societal perspective in the patients at a referral hospital in Fars province as well as the economic burden of COVID-19 in Iran in 2020.Methods:This is a partial economic evaluation and a cross-sectional cost-description study conducted descriptively-analytically and based on the data of the COVID-19 patients referred to a referral university hospital in Fars province between March and July 2020. The data were collected by examining the patients' records and accounting information systems. The subjects included all the inpatients with COVID-19 (477 individuals) who admitted to the medical centre during the four months. Bottom-up costing, incidence-based and income-based human capital approaches were used as the main methodological features of this study.Results: The mean direct medical costs were estimated 28,240,025,968 Rials ($ 1,791,172) in total and 59,203,409 Rials ($ 3,755) per person, a significant part of which (41 %) was that of intensive and general care beds (11,596,217,487 Rials equal to $ 735,510. (The second to which were the costs of medicines and medical consumables (28 %). The mean indirect costs including income loss due to premature death, economic production loss due to hospitalization and job absenteeism during recovery course were estimated 129,870,974 Rials ($ 11634) per person. Furthermore, the economic burden of the disease in the country for inpatient cases with the definitive diagnosis was 22,688,925,933,095 Rial equal to $ 1,439,083,784.Conclusion: The results of this study showed that the severe status of the disease would bring about the extremely high cost of illness in this case. It is estimated that the high prevalence rate of COVID-19 has been imposing a heavy economic burden on the country and health system directly that may result in rationing or painful cost-control approaches.

scholarly journals Pengaruh Analisis Faktor Fundamental Terhadap Return Saham

2011 ◽  
Vol 2 (2) ◽  
pp. 85
Author(s):  
Perwito Perwito
Keyword(s):  
Time Series ◽  
Cross Sectional ◽  
Dividend Payout ◽  
Data Pooling ◽  
Return On Equity ◽  
Book Value ◽  
Times Series ◽  
Ex Post ◽  
Ratio Size ◽  
Ex Post Facto

Krisis yang terjadi pada tahun 2008 sangat mempengaruhi kinerja perusahaan-perusahaan yang terdaftar di Bursa Efek Indonesia, hal ini terlihat dengan menurunnya harga saham. Menurunnya harga saham tersebut tentunya akan berimplikasi pada return yang didapatkan oleh investor. Penelitian mengkaji dan menganalisis faktor-faktor fundamental terhadap return saham. Jenis dan sifat penelitian ini adalah ex post facto dan survey explanatory, adapun metode penelitian yang digunakan adalah metode yang bersifat deskriptif, komparatif, asosiatif, dan juga verifikatif. Variabel yang dianalisis terdiri dari; Variabel terikat (Y), dalam hal ini adalah return saham, sedangkan variabel bebas yang terdiri dari return on equity (ROE), earning per share (EPS), price earning ratio (PER), price book value (PBV), dan tingkat suku bunga. Populasi dalam penelitian ini terdiri dari perusahaan kelompok Industri Barang Konsumsi dan Keuangan yang terdaftar di Bursa Efek Indonesia periode 2002 s.d 2009 yang terdiri dari 31 perusahaan untuk kelompok industri barang konsumsi, dan 44 perusahaan pada kelompok keuangan. Data yang dianalisis merupakan gabungan antara data time series dan cross sectional, atau biasa disebut data pooling atau pooled times series, dengan 429 data sampel penelitian. Hasil penelitian menunjukkan, pertama; terdapat perbedaan return saham antara kelompok Industri Barang Konsumsi dan Keuangan, rata-rata total return saham yang dihasilkan oleh kelompok Keuangan relatif lebih besar jika dibandingkan dengan rata-rata return saham dari kelompok Industri Barang Konsumsi, hal tersebut mengindikasikan bahwa masing-masing kelompok industri memiliki return dan pertumbuhan yang berbeda-beda. Kedua; hasil penelitian ini menjelaskan bahwa nilai r sebesar 0,387 dan R² sebesar 0,1498, hal ini berarti pengaruh faktor fundamental terhadap return saham sebesar 14,98%, dan sisanya sebesar 85,02% dipengaruhi oleh faktor lain yang tidak dijelaskan dalam penelitian ini seperti return on asset, dividend dan dividend payout ratio, size, serta beta fundamental. Sehingga dapat disimpulkan secara simultan atau secara bersama-sama bahwa analisis faktor fundamental dapat digunakan untuk memprediksikan return saham pada perusahaan kelompok Industri Barang Konsumsi dan Keuangan. Sedangkan secara parsial hanya EPS berkontribusi paling kuat yakni 9,12%.

Valuation of a Firm with a Tax Loss Carryover

2003 ◽  
Vol 25 (s-1) ◽  
pp. 65-82 ◽  
Author(s):  
Anja De Waegenaere ◽  
Richard C. Sansing ◽  
Jacco L. Wielhouwer
Keyword(s):  
Direct Effect ◽  
Firm Value ◽  
Real Option ◽  
Market Value ◽  
Book Value ◽  
Future Income ◽  
Tax Benefits ◽  
Physical Assets ◽  
Deferred Tax ◽  
Tax Loss

This paper examines the effects of a tax loss carryover on the market and book values of a firm's assets. The loss carryover has a direct effect on market value by sheltering future income from tax, and a direct effect on book value due to the recognition of a deferred tax asset. The failure to discount the deferred tax asset to its present value causes the market-to-book ratio of the deferred tax asset to be less than 1. However, positive skewness in the distribution of future taxable income can cause the market-to-book ratio to exceed 1 because the market value depends on the mean level of future tax benefits, while the book value is based on the median level of future tax benefits. The loss carryover also has an indirect effect on firm value in that it induces the firm to exercise its real option to invest early. This reduces firm value before investment takes place and decreases the market-to-book ratio of physical assets after investment takes place.

An Examination of the Effect of IT Investments on Firm Value: The Case of Y2K-Compliance Costs

2000 ◽  
Vol 14 (2) ◽  
pp. 95-108 ◽  
Author(s):  
Gopal V. Krishnan ◽  
Ram S. Sriram
Keyword(s):  
Information Technology ◽  
Stock Market ◽  
Firm Value ◽  
Market Value ◽  
Annual Reports ◽  
Equity Valuation ◽  
Compliance Costs ◽  
Book Value ◽  
It Investments ◽  
Share Prices

In this study, using the recent Y2-compliance expenditures as an example, we examine whether disclosures relating to investments in information technology (IT) were relevant to investors in assessing the market value of equity. We use a sample of 190 firms that disclosed estimates of total Y2K-compliance costs in their 1997 annual reports to examine the association between Y2K-compliance costs and share prices. We test the joint hypothesis that Y2K-compliance costs were relevant to equity valuation of firms that chose to become Y2K-compliant and that these costs were sufficiently reliable to be reflected in share prices. We find that estimates of Y2K-compliance costs were positively and significantly related to share prices after controlling for earnings, book value of equity, and other factors. We find that the stock market is not shortsighted, and consider investments in Y2K-remediation efforts a significant and value-increasing activity for the average firm.

Fundamental Valuation in Seven Asian Countries: Role of Earnings, Book Value, and Dividends

2020 ◽  
pp. 0148558X2094690
Author(s):  
Kriengkrai Boonlert-U-Thai ◽  
Shahrokh M. Saudagaran ◽  
Pradyot K. Sen
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Asian Countries ◽  
Book Value ◽  
International Firms ◽  
Financial Reporting Standards ◽  
Valuation Model ◽  
Prior Use ◽  
Other Information

We examine the role of earnings, book value, and dividends in examining the valuation of firms in select Asian countries. Besides the usual variables of earnings and book value, inclusion of dividends is motivated by prior use of the variable in the literature, as well as an adaptation of the Ohlson 2001 empirical specification of the valuation model. In our specification, absent credible analysts’ forecasts, as is typical in these markets, dividends together with earnings play the role of “other information” in explaining stock prices. In a large sample of Asian firms from seven Asian countries that lack an active analyst community, we document two key results. First, the model with earnings, book value, and dividends outperforms the earnings capitalization, book value, and a model with earnings and book value together, the traditional benchmarks used in the literature. This is in contrast to Ashbaugh and Olsson, 2002 who find that earnings capitalization is the best model for the international firms. Second, the ability of the model to explain stock valuations does not vary materially over time, thus indicating reasonable consistency across different accounting regimes in these countries that may include International Financial Reporting Standards (IFRS) adaptation at different paces. Our finding highlights the information role of earnings and dividends when other channels of information are blocked.

Sign in / Sign up

Export Citation Format

Share Document