What do Corporate Bonds Know? Establishing the Link Between Financial Distress and Book to Market Ratio

2005 ◽  
Author(s):  
Padmaja Kadiyala ◽  
Sugato Chakravarty
Keyword(s):  
Financial Distress ◽  
Corporate Bonds ◽  
Book To Market Ratio

The Distress Anomaly is Deeper than you Think: Evidence from Stocks and Bonds

2021 ◽  
Author(s):  
Doron Avramov ◽  
Tarun Chordia ◽  
Gergana Jostova ◽  
Alexander Philipov
Keyword(s):  
Credit Risk ◽  
Financial Distress ◽  
Corporate Bonds ◽  
Time Varying ◽  
External Financing ◽  
Earnings Expectations ◽  
Limits To Arbitrage

Abstract The distress anomaly reflects the abnormally low returns of high credit risk stocks during financial distress. Evidence from stocks and corporate bonds reinforces the anomaly and challenges rationales based on shareholders’ ability to extract value from bondholders, time-varying betas, lottery-type preferences, biased earnings expectations, and limits-to-arbitrage. Moreover, mispricing of distressed stocks and bonds is associated with excess investment and excess external financing. Potential real distortions are materially understated when assessed based only on equity mispricing. We emphasize the important role of corporate bonds in dissecting the distress anomaly, and show that the anomaly is an unresolved puzzle.

scholarly journals Determining Force behind Value Premium: The Case of Financial Leverage and Operating Leverage

2020 ◽  
Vol 13 (9) ◽  
pp. 196
Author(s):  
Hafiz Muhammad Zia ul haq ◽  
Muhammad Sohail Shafiq ◽  
Muhammad Kashif ◽  
Saba Ameer
Keyword(s):  
Stock Returns ◽  
Financial Distress ◽  
Stock Exchange ◽  
Systematic Risk ◽  
Theoretical Models ◽  
Value Premium ◽  
Financial Leverage ◽  
Investment Activity ◽  
Book To Market Ratio ◽  
Operating Leverage

The determining force behind the value premium is the matter of debate among the researchers. Some are of the opinion that the financial distress risk determines value premium whereas other theorize that value premium is basically the compensation for operating leverage (investment activity risk). This research provides empirical evidence on this theoretical contradiction by investigating the relationships of financial leverage (FL) and operating leverage (OL) with stock returns, the book to market ratio (B/M), and systematic risk on non-financial sector firms trading at the Pakistan stock exchange (PSE). This research empirically finds significant and direct influence of operating leverage on stock returns, the book to market ratio, and systematic risk respectively. Overall findings provide support for the theoretical models which have a linked book to market effect with operating leverage. Thus, we conclude that investment activity risk seems to be the major factor that determines value premium.

scholarly journals Pengaruh Firm Size dan Market to Book Ratio terhadap Return Portofolio

2018 ◽  
Vol 15 (2) ◽  
pp. 138-145
Author(s):  
Dormauli Justina
Keyword(s):  
Firm Size ◽  
Financial Distress ◽  
Factor Model ◽  
Stock Exchange ◽  
Investment Decision ◽  
Average Return ◽  
Negative Effect ◽  
Manufacture Firm ◽  
Book To Market Ratio ◽  
Portfolio Return

Tujuan penelitian – To examine effect of firm size and market to book ratio on portfolio return.Desain/Metodologi/Pendekatan – Research sample consists of manufacture firm stock listed in Indonesian Stock Exchange 2011-2013. Portfolio return measured by excess return of average 5 highest return and 5 lowest return. Portfolio firm size measured by differences of average return of 5 biggest firm size with 5 smallest firm size. Portfolio book to market ratio measured by differences of average return of 5 highest book to market ratio with 5 lowest book to market ratioTemuan – Based on regression analysis, firm size and book to market ratio have negative effect on portfolio return. The result confirms existence of three factor model in return determination. Investor captures the size effect and financial distress indication of book to market ratio in return estimation and stock investment decision making.Keterbatasan penelitian – This research only used manufacture firm as sample, so the result could not be generalized to all firm population at Indonesia Stock Exchange. This research also did not separate between active stock and inactive stock which were traded monthly, so it probably there was bias return calculation because of the inactive stock.Originality/value – the high of book to market ratio showed that the firm had bad performance and tend to financial distress or poor prospect.

scholarly journals Long-run performance of firms emerging from financial distress: Empirical evidence from Malaysia

2018 ◽  
Vol 7 (1) ◽  
pp. 47 ◽  
Author(s):  
Abd Halim Ahmad ◽  
Nur Adiana Hiau Abdullah ◽  
Kamarun Nisham Taufil Mohd
Keyword(s):  
Empirical Evidence ◽  
Financial Distress ◽  
Stock Exchange ◽  
Long Run ◽  
Financially Distressed ◽  
Book To Market Ratio

We examine the long-run performance of firms emerging from financial distress in Malaysia. The sample consists of 114 companies listed on the Bursa Malaysia stock exchange that emerged from a financially distressed classification between 2001 and 2014. We investigate whether post-distressed performance is similar to the performance of firms of equivalent size and book-to-market ratio and the market indices. The results suggest that firms emerging from financial distress in Malaysia underperform when compared to the performance of firms similar in size and book-to-market ratio and the market indices. This suggests that the post-restructuring performance of firms on the Bursa Malaysia stock exchange that have emerged from financial distress does not improve.

PENGARUH PERPUTARAN PIUTANG DAN SOLVABILITAS TERHADAP KONDISI FINANCIAL DISTRESS PERUSAHAAN MANUFAKTUR SEKTOR GARMEN DAN TEKSTIL DI BURSA EFEK INDONESIA

2018 ◽  
Vol 19 (2) ◽  
pp. 87
Author(s):  
Siska Wulandari
Keyword(s):  
Financial Distress ◽  
Free Market ◽  
Linear Regression Analysis ◽  
Secondary Data ◽  
Multiple Linear Regression Analysis ◽  
Working Capital ◽  
Leverage Ratio ◽  
Ratio Effect ◽  
Waste Bank ◽  
Solvency Ratio

Manufacture Sub Sector Garment And Textile have financial distress condition. Increas of sales is one of choice for company can be competitive in free market. But increase of sales will be followed by the many possibilities of uncollected receivable or the low receivable turnover which can effect forced the company to further provide working capital. One way is to get working capital from a third part or what we call debt.This research aims to determine the effect of receivable turnover and the solvency ratio toward the financial distressThe problems of the research were: 1) is the receivable turnover effect toward financial distress condition on Garmen and textile company Listed on IDX on 2011-2015? 2) is the leverage ratio effect toward financial distress condition on Garmen and textile company Listed on IDX on 2011-2015 ? 3) Are the receivable turnover and solvency ratio effect toward financial distress condition on Garmen and textile company Listed on IDX on 2011-2015?The sample of this research is 11 Manufacture company of sub sector Garmen And Textile were taken by using purposive sampling techniques. This research data used secondary data that getting from literature review. Data were tested using multiple linear regression analysis to determine the effect between one variable with another variables, and the data was then processed using SPSS 22.0 for windows.Result of the research showed that partially, receivables turnover hadn’t a significant effect toward  the financial distress. Partially, solvency ratio (Debt to Asset) had a significant influence toward financial distress Simultaneously, receivable turnover and solvency ratio had a significant effect toward financial distress. Kata kunci:Waste Bank, Waste Bank Management, Waste Bank Basic Concepts, Economic Improvement of the Family

Risk Factors of Collateralized Loan Obligations and Corporate Bonds

2020 ◽  
Vol 32 (6) ◽  
pp. 347-355
Author(s):  
Mark Wahrenburg ◽  
Andreas Barth ◽  
Mohammad Izadi ◽  
Anas Rahhal
Keyword(s):  
Risk Factors ◽  
Risk Factor ◽  
Asset Pricing ◽  
Systemic Risk ◽  
Corporate Bonds ◽  
Risk Exposure ◽  
Expected Returns ◽  
Yield Spreads ◽  
Pricing Factors ◽  
Return Difference

AbstractStructured products like collateralized loan obligations (CLOs) tend to offer significantly higher yield spreads than corporate bonds (CBs) with the same rating. At the same time, empirical evidence does not indicate that this higher yield is reduced by higher default losses of CLOs. The evidence thus suggests that CLOs offer higher expected returns compared to CB with similar credit risk. This study aims to analyze whether this return difference is captured by asset pricing factors. We show that market risk is the predominant risk factor for both CBs and CLOs. CLO investors, however, additionally demand a premium for their risk exposure towards systemic risk. This premium is inversely related to the rating class of the CLO.

Obesity and Household Financial Distress

2017 ◽  
Vol 6 (1) ◽  
pp. 133-178 ◽  
Author(s):  
Katherine Guthrie ◽  
Jan Sokolowsky
Keyword(s):  
Financial Distress

The Illiquidity of Corporate Bonds

CFA Digest ◽  
2011 ◽  
Vol 41 (4) ◽  
pp. 68-70 ◽  
Author(s):  
Spencer L. Klein
Keyword(s):  
Corporate Bonds
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