TY  - JOUR
AU  - Campbell,John Y.
AU  - Hilscher,Jens
AU  - Szilagyi,Jan
TI  - In Search of Distress Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12362
PY  - 2006
Y2  - July 2006
UR  - http://www.nber.org/papers/w12362
L1  - http://www.nber.org/papers/w12362.pdf
N1  - Author contact info:
John Y. Campbell
Morton L. and Carole S.
Olshan Professor of Economics
Department of Economics
Harvard University
Littauer Center 213
Cambridge, MA 02138
Tel: 617/496-6448
Fax: 617/495-7730
E-Mail: john_campbell@harvard.edu

Jens Hilscher
20 Prescott St. Apt 2
Cambridge MA 02138
Tel: (617) 945 8828
E-Mail: hilscher@brandeis.edu

Jan Szilagyi
330 West 85th Street
Apt 4H
New York
NY, 10024
E-Mail: jan@duquesne.com
AB  - This paper explores the determinants of corporate failure and the pricing of financially distressed stocks using US data over the period 1963 to 2003. Firms with higher leverage, lower profitability, lower market capitalization, lower past stock returns, more volatile past stock returns, lower cash holdings, higher market-book ratios, and lower prices per share are more likely to file for bankruptcy, be delisted, or receive a D rating. When predicting failure at longer horizons, the most persistent
firm characteristics, market capitalization, the market-book ratio, and equity volatility become relatively more significant. Our model captures much of the time variation in the aggregate failure rate. Since 1981, financially distressed stocks have delivered anomalously low returns. They have lower returns but much higher standard deviations, market betas, and loadings on value and small-cap risk factors than stocks with a low risk of failure. These patterns hold in all size quintiles but are particularly strong in smaller stocks. They are inconsistent with the conjecture that the value and size effects are compensation for the risk of financial distress.
ER  -