Abstract
In this study we hypothesise that more frequent extreme negative daily equity returns result in higher tail risk, and this subsequently increases firms’ likelihood of entering financial distress. Specifically, we investigate the role of Value-at-risk and Expected Shortfall in aggravating firms’ likelihood of experiencing financial distress. Our results show that longer horizon (three- and five-year) tail risk measures contributes positively toward firms’ likelihood of experiencing financial distress. Additionally, considering the declining number of bankruptcy filings, and increasing out-of-court negotiations and debt reorganisations, we argue in favour of penalising firms for becoming sufficiently close to bankruptcy that they have questionable going-concern status. Thus, we propose a definition of financial distress contingent upon firms’ earnings, financial expenses, market value and operating cash flow.
Original language | English |
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Pages (from-to) | 167-185 |
Number of pages | 19 |
Journal | Journal of Business Research |
Volume | 99 |
Early online date | 27 Feb 2019 |
DOIs | |
Publication status | Published - 1 Jun 2019 |
Bibliographical note
© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/Keywords
- Bankruptcy
- Downside risk
- Expected shortfall
- Financial distress
- Tail risk
- Value-at-risk