Post COVID-19 Financial Distress: Prediction of Corporate Defaults at Pakistan Stock Exchange (PSX)

COVID-19 has slowed down the global economic activity which is expected to turn into an economic recession, where firms are expected to experience financial distress leading to corporate defaults. Predicting such defaults is important to safeguard stakeholders’ interest in financial markets. This study has estimated extent of financial distress among firms listed at PSX and constituting KSE 30 index, by using Altman’s Z-Score. The score has been computed using financial statements of 2019-20, and on proforma financial statements for 2020-21 2019-20, considering these financial years as pre and post COVID-19 closing dates respectively for financial statements. The proforma financial statements have been drawn for financial 2020-21 2019-20 using established accounting conventions of prudence, conservatism, substance over form, ad foreseeable future. The results of Z-score in pre and post COVID-19 have been compared to assess the change in degree of financial distress among the selected firms. A significant increase in the degree of financial distress has been observed, which may lead to an increased number corporate default for the firms listed at PSX. Suggestion have been made to the firms and corporate regulators to curtail the rate of corporate defaults, along with limitation of this study and areas of future research.

Corporate Default Risk and Environmental Deterioration (International Evidence)

This study explores the impact of corporate default risk on environmental deterioration in the international context. We find that corporate bankruptcy is positively associated with CO2 emissions and its decomposed components. These findings are reliable in low-income and highly uncertain countries but weak in countries having more market competition. We also find that the negative impact of corporate default risk on environment is more robust in countries with more population density and less forest area thresholds. Using instrumental variable approach, we provide preliminary evidence that firm-level political risk (for U.S. and Canadian firms only) tend to increase corporate default risk leading to degrading environment. Our research will help environmental authorities to consider corporate-default risk as a determinant when formulating environmental-related strategies.

Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873

Although corporate default crises are often quite severe, previous work has found little impact on real macroeconomic variables. This article investigates the relationship between railroad defaults and the balance sheets of local banks following the Panic of 1873. Receivers appointed to run railroads in default lacked the legal tools necessary to fully maintain railroad operations. The results indicate that railroad bond defaults negatively impacted the lending activity of local banks. Affected banks experienced declines in loans and deposits along with increases in excess reserves. These findings point to a disruption of the transportation network attributable to the railroad bond default crisis.

Key Ratios for Long-Term Prediction of Hotel Financial Distress and Corporate Default: Survival Analysis for an Economic Stagnation

Hospitality companies often face economic crises, which stress their financial structure. In 2008, Spanish hotels were jeopardized when the travelers’ flows became stagnated, in either domestic and foreign markets. Most of them overcame the crisis, but not all, in part depending on their capital structure at the moment the downturn loomed upon them. This study analyzes the financial ratios registered in 2008 by 3.341 Spanish lodging enterprises, to find out the most relevant ratios that were associated with an eventual breakdown. The analyzed ratios have been largely suggested by previous literature for anticipating financial distress; however, using survival tables and Kaplan–Meier estimates we could also find new insights about several promising variates for future research. In the end, by performing a Cox regression, we could isolate the return on capital employed (ROCE) ratio as a long-term predictor for small hotels’ bankruptcy after a market downturn. Moreover, the legal status seems to be a key predictor concerning medium-sized hotels.