Auswahl der wissenschaftlichen Literatur zum Thema „The Risk of Financial Distress“

This study investigates the effects of the value of financial flexibility (VOFF) on corporate investment policies and distress risk. I empirically examine three main following research questions: (1) Does VOFF affect level and efficiency of firm's capital investment, (2) does VOFF impact corporate ability to invest in working capital and the speed of working capital adjustment, and (3) does VOFF explain the variation in a firm's default probability. The study is mainly motivated by the well-established theoretical framework that suggests that financial flexibility enables a firm to finance desirable projects in a timely and value-maximising manner when such profitable opportunities arise and it may reduce the likelihood of financial distress under the effects of negative shocks in cash flows (Gamba and Triantis, 2008). However, to date, no systematic investigation has considered whether and to which extent the value, not level, of financial flexibility can affect firm investment, whether VOFF's effects are the same across different types of investment and how it can explain the variations in failure probability. I use a sample of 8024 non-financial US firms over the period of 1978-2013 and employ multiple methods under the panel data methodology to answer the research and hypothesis questions. I find that higher VOFF can lead to lower investment level in fixed capital, a higher likelihood of bypassing investment opportunities, and more likelihood of suffering from higher investment distortions, especially underinvestment, in long-term assets. In addition, the negative relation between investment efficiency and VOFF is higher for more financially constrained firms. With regards to the effect of VOFF on firm policy in working capital management, I uncover that firms whose shareholders confer a higher value on financial flexibility suffer from both underinvestment and overinvestment problems, particularly the latter. I also find that VOFF accelerates the SOA of WC and that such factors as WC approach, financial constraint, and types of industry have bearing effects on the relation between VOFF and SOA of WC. I also show that firms with higher VOFF suffer less from the risk of failure. I find that the main mechanism for this negative relation is via a reduction in total leverage, especially short-term debts. I also evince that such factors as firm rigidity (a proxy for operating flexibility), credit-default swaps trading and managerial quality have moderating effects that exert possible influences on the nature and strength of the credit risk-VOFF relation. The thesis's results advance the literature in several ways. First, it provides evidence in support of theoretical works that emphasise the precautionary motive of cash holding, the value of liquid assets, and their implications for corporate decisions (Gamba and Triantis, 2008, Riddick and Whited, 2009, Bolton et al., 2011). Second, while existing approaches aim at to measure the level of financial flexibility, I, in contrast, follow a new approach to measure the economic value of financial flexibility by using the stock market reaction as a means to an end to measure VOFF and subsequently utilize this measure to study different issues on corporate investment and credit risk. I view my thesis as an extension to Rapp et al.'s (2014) works by providing new empirical evidence of possible effects of VOFF a firm's investment policy and credit risk. From a practical viewpoint, this thesis highlights the impacts of financial flexibility on real investment decisions and its risk relevance. The findings also help to explain why financial flexibility is a first-order consideration in making financial decisions among the top CEO around the globe (Graham and Harvey, 2001, Brounen et al., 2004, Campello et al., 2010). Furthermore, since VOFF is found to have significantly explanatory power for the variation in credit risk it can help to increase the information set to predict credit risk by relevant parties such as managers, suppliers, and lenders, among others.

Financial and output market decisions are crucial to the success or failure of an or- ganization. These decisions are influenced by the dynamic and competitive economic environment in which firms operate and, in turn, affect the ability of firms to meet their debt obligations. This thesis is constituted by three separate but interrelated essays which explore the impact of financial and operating decisions on the default risk. The first two essays study the equilibrium default probability, in a two-stage differentiated product duopoly model with uncertainty, where firms decide their financial structure in the first stage and their quantities in the second stage. These two essays analyze the impact of changes in the parameters of the model, on the equilibrium default probability (the first essay uses com- parative statics tools while the second uses numerical simulation). The impact of changes in the uncertainty level, in the degree of product substitutability, in the marginal costs and in the default cost on the financing and output decisions and on the default risk are analyzed. The third essay tests empirical the relationship between market structure and capital structure decisions and their relationship with the default probability using a sam- ple of eleven members of the Organization for Economic Cooperation and Development (OECD). The three essays reach a coherent set of conclusions. In particular, they show that uncertainty, market structure and default costs influence financial and product market de- cisions and the probability of default. Moreover, they show that the default probability is influenced directly by the parameters, but it is also influenced by the way firms optimally adjust their financial and product market decisions when the parameters change. There- fore a less favorable environment does not necessarily imply higher default probability, as firms may respond by financing less with debt; RESUMO:Decisões financeiras e no mercado do produto são cruciais para o sucesso ou falência de uma organização. Estas decisões são influenciadas pelo ambiente econômico, dinâmico e competitivo em que as empresas operam e, por sua vez, afetam a capacidade das empresas cumprirem suas obrigações. Esta tese é constituída por três ensaios distintos, mas interrelacionados que exploram o impacto das decisões financeiras e operacionais sobre o risco de incumprimento. Os dois primeiros ensaios estudam a probabilidade de incumprimento de equilíbrio, num modelo duopólio, com produtos diferenciados, com dois estágios e com incerteza, onde as em- presas no primeiro estágio decidem a sua estrutura financeira, e no segundo estágio as suas quantidades. Estes dois ensaios analisam o impacto de alterações dos parâmetros do modelo na probabilidade de incumprimento de equilíbrio (o primeiro ensaio usa ferra- mentas de estática comparada, enquanto o segundo usa simulação numérica). É analisado o impacto de mudanças no nível de incerteza, no grau de substituibilidade do produto, nos custos marginais e no custo de incumprimento sobre as decisões de financiamento e de produção, e sobre o risco de incumprimento. O terceiro ensaio testa empíricamente a relação entre estrutura de mercado e as decisões da estrutura de capital e a sua relação com a probabilidade de incumprimento, utilizando uma amostra de onze membros da Organização para a Cooperação e Desenvolvimento Económico (OCDE). Os três ensaios chegam a um conjunto coerente de conclusões. Nomeadamente, mostram que a incerteza, a estrutura de mercado e custos de incumprimento infuenciam as decisões financeiras e no mercado do produto e a probabilidade de incumprimento. Além disso, mostram que a probabilidade de incumprimento é infuênciada diretamente pelos parâmetros , mas também é infuênciada pela forma como as empresas ajustam de forma ótima as suas decisões financeiras e no mercado do produto quando os parâmetros alteram. Por conseguinte, um ambiente menos favorável não significa necessariamente maior probabilidade de incumprimento, uma vez que as empresas podem responder financiando-se com menos dívida

The thesis focuses on the impacts of market distress conditions and firms’ default probability on two key investment strategies in the UK. These are investment decisions in value firms versus growth firms (chapter 3), and well-performing firms versus poorly-performing firms (chapter 4). Although distress risk (measured by the market conditions and default probability) is a relevant factor in explaining the general movement of stock returns, this is the first study addressing a direct link between these distress elements and the above two investment choices. The thesis employs a range of distress indicators, including the following: firm-specific proxies such as Fama-French’s (1993) three factors (i.e. the market beta, firm size and book-to-market factors), idiosyncratic volatility, default risk, and market-related factors (e.g. business cycles, market downturn and upturn conditions). More recent data and well-developed proxies are used to make sure the results are valid and robust. First of all, the thesis finds positive abnormal returns from investing in value and momentum companies. Among these investment strategies, momentum stocks generate significant profitability in the short run. However, the value firms’ investments generate positive but insignificant profit. In terms of explanatory ability, distress risk is found to play an important role in explaining value and momentum anomalies. For example, there is evidence that highly volatile stocks tend to suffer greater default risk, and that stocks with a higher default risk generate lower returns. The results in this study also suggest that momentum-oriented investors would benefit from significantly high returns during market upturns, however these strategies would lead to great losses during recessions.

This thesis investigates the role of corporate governance in US bank holding companies between 1998 to 2007. In the course of the thesis, four main contributions to extant literature are brought to the fore. First, the research facilitates a better understanding of the link between corporate governance and risk-taking. This is the main focus of the thesis and so this strand permeates the entire text. Second, it constructs a distance-to-default indicator, which is used to predict and compare financial conditions in banks that issued subordinated debt with those that did not. Third, it considers the impact of managerial incentives on bank risk-taking through board structure. Finally, the results provide a platform from which to view the various policy implications raised by the thesis. In analysing the extent to which distance to default is explained by bank risk fundamentals, it is shown that distance to default is predicted marginally better in sub-debt banks relative to non-sub-debt banks. For banks that issue sub-debts, again, it is found that charter values and bank capitalisation further increase the power of bank fundamentals to predict default risk. Turning to bank risk-related variables, capital to assets and non-performing loan ratios negatively and positively affect managerial ownership, respectively. This evidence is new. The percentage of independent directors is positively related to capital to asset and liquid asset ratios, and negatively related to the non-performing loans ratio. Capital to assets and non-performing loan ratios have an observed positive and negative correlation with the percentage of institutional ownership. Also, excessive risk-taking is evident in ex-ante and ex-post Sarbanes and Regulation and linked to board size. With respect to managerial incentives, equity- and cash-based compensation is positively related to bank risk. Finally, while leverage varies directly with stock options, it is inversely associated with cash compensation.

Credit models are essential to control credit risk and accurately predicting bankruptcy and financial distress is even more necessary after the recent global financial crisis. Although accounting and financial information have been the main variables in corporate credit models for decades, academics continue searching for new attributes to model the probability of default. This thesis investigates the use of corporate efficiency and corporate governance measures in standard statistical credit models using cross-sectional and hazard models. Relative efficiency as calculated by Data Envelopment Analysis (DEA) can be used in prediction but most previous literature that has used such variables has failed to follow the assumptions of Variable Returns to Scale and sample homogeneity and hence the efficiency may not be correctly measured. This research has built industry specific models to successfully incorporate DEA efficiency scores for different industries and it is the first to decompose overall Technical Efficiency into Pure Technical Efficiency and Scale Efficiency in the context of modelling financial distress. It has been found that efficiency measures can improve the predictive accuracy and Scale Efficiency is a more important measure of efficiency than others. Furthermore, as no literature has attempted a panel analysis of DEA scores to predict distress, this research has extended the cross sectional analysis to a survival analysis by using Malmquist DEA and discrete hazard models. Results show that dynamic efficiency scores calculated with reference to the global efficiency frontier have the best discriminant power to classify distressed and non-distressed companies. Four groups of corporate governance measures, board composition, ownership structure, management compensation and director and manager characteristics, are incorporated in the hazard models to predict financial distress. It has been found that state control, institutional ownership, salaries to independent directors, the Chair’s age, the CEO’s education, the work location of independent directors and the concurrent position of the CEO have significant associations with the risk of financial distress. The best predictive accuracy is made from the model of governance measures, financial ratios and macroeconomic variables. Policy implications are advised to the regulatory commission.

The financial crises of 2008 increased the focus around financial distress and even more so on predicting financially distressed companies prior to the fact. This research paper investigates using recursive partitioning to predict financially distressed companies on the Johannesburg Stock Exchange, taking different business cycle periods into account over the time period 1997-2014. The updated as well as longer time period over which the analysis is conducted distinguishes this research paper from prior research. This paper employs both the CART and CHAID algorithm and obtains financially distressed prediction models which have a higher correct classification rate than chance alone and prior literature in South Africa. This paper also makes use of a matched data sample approach and the manner in which missing data is addressed makes a valuable contribution to financial distress prediction research. Furthermore, support is found for prior literature in that financial variables are statistically significant in predicting financial distress.

There are increased calls for corporations to act responsibly. Those responsibilities exceed the classical assumption that the only responsibility of the firm is its shareholders and ultimately to maximize their wealth. Any social issue participation has been described as charity or squandering of resources at the expense of the shareholders. According to the Stakeholder theory, firms should consider every stakeholder that is affected by the company and stakeholder management can be a source of value. The risk reduction hypothesis is especially interesting in the context of corporate sustainability. There have been multiple studies that have explored the relationship between corporate sustainability performance and the risk of financial distress. Like those studies, this study found that corporate sustainability performance is negatively associated with the risk of financial distress. Thereby answering the research question proposed by the authors: “Does corporate sustainability performance affect the risk of financial distress?”. Companies with higher sustainability performance will experience less risk and engagement in those activities works as a risk reduction tool. Different levels of sustainability performance have different effect on the risk, which should be considered by investors and management. It should inspire investors to incorporate sustainable companies in their investment portfolios. Furthermore, the thesis contributes to the field of knowledge by analyzing the empirical results using the Stakeholder Theory, the Shareholder Theory, the Legitimacy Theory, the Resource-based view, the Agency Theory and the Stewardship Theory. The study provides evidence of an increasing importance of sustainability performance and suggests that firms can use sustainability performance to mitigate risk. This is a panel data analysis including approximately 16,000 firm-year observations. The study takes a deductive approach, and the research is conducted under a positivist paradigm. The data is tested through conducting OLS regressions with fixed effects. The results of the statistical testing have been compared to previous studies and other relevant literature.

This thesis provides an empirical analysis of the relationship between the value premium and financial distress. Measures of leverage and default are used as proxies for financial distress. Using both an international data set, 1991 to 2006 and a long time series data set for the United States, 1927 – 2007, the thesis adds knowledge about the role of the value premium in asset pricing theory. Generalised autoregressive conditional heteroscedastic modelling (GARCH) is used and information gathered on the volatility of the value premium. A vector autoregressive (VAR) framework and Granger Causality tests are utilised in order to offer a deeper examination of the relationship between risk premium and economic activity. The results add further evidence to support the view that the value premium appears to be linked to variables associated with financial distress, although it is noted that this does not necessarily mean that participants in financial markets behave rationally.

Cette thèse porte sur la prédiction de la détresse financière et son impact sur le rendement des actions. L’objet principal de cette thèse est de : (i) prédire la détresse financière des petites et moyennes entreprises françaises en utilisant plusieurs spécifications économétriques tels que, le modèle Logit, les réseaux de neurones artificiels, la méthode SVM et la régression des moindres carrés partiels, et (ii) d’identifier les facteurs de risque de détresse financière à caractère systématique, explicatifs des rendements des actions, et additionnels au modèle de Fama et French (1993) tels que le momentum, la détresse relative, la liquidité et la Value-at-Risk, sur le marché boursier Français. Cette étude comporte deux parties. La première partie, composée de 2 chapitres, s’interroge sur les principaux indicateurs discriminants entre les petites et moyennes entreprises françaises saines et celles en détresse financière un an et deux ans avant la défaillance. Elle mobilise différentes approches de prédiction et aboutit à des résultats empiriques qui font l’objet d’analyse. La deuxième partie, composée aussi de 2 chapitres, étudie le pouvoir explicatif, du modèle de Fama et French (1993) augmenté de certains facteurs de risque, mais aussi des modèles alternatifs à cette approche dans le contexte français. Les tests portent aussi sur le caractère systématique des facteurs de risque additionnels ou alternatifs, explicatifs des rendements des actions. Les résultats empiriques obtenus font l’objet d’analyse et permettent de proposer des implications managériales aux décideurs<br>This thesis focuses on financial distress and its impact on stock returns. The main goal of this dissertation is: (i) to predict the financial distress of French small and medium-sized firms using a number of techniques namely Logit model, Artificial Neural Networks, Support Vector Machine techniques, and Partial Least Squares, and (ii) to identify the systematic risk factors of financial distress that can explain stock returns, in addition to those of Fama and French (1993) such as the momentum, the relative distress, the liquidity, and the Value-at-Risk in the French stock market. This study has been concretized in two parts. The first part, composed of 2 chapters, wonders about the main indicators that can discriminate between distressed and non-distressed French small and medium-sized firms one and two years before default. It mobilizes different prediction techniques and leads to the empirical results that are the subject of the analysis. The second part, composed also of 2 chapters, investigates the explanatory power of Fama and French (1993) model augmented by a number of risk factors, as well as alternative models in the French context. The tests also focus on the systematic nature of the additional or alternative risk factors, explaining the stock returns. The obtained empirical results are analyzed and propose managerial implications to decision makers