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Buy custom Is the Risk of Bankruptcy a Systematic Risk?

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Topic: Business
Number of pages / Number of words: 6 / 1519
Essay's paper body

Interestingly, Altman ~1993!

finds that the bonds of the most distressed firms ~defined as high-yielding

bonds! earn lower than average subsequent returns, consistent with bankruptcy

risk being negatively related to systematic risk.

This study presents more direct and comprehensive evidence about the

relation between bankruptcy risk and systematic risk...


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Measures of bankruptcy

risk are derived from existing models of bankruptcy prediction ~Altman

~1968! and Ohlson ~1980!! which have been widely used in other research

and in practice. Systematic risk is proxied by subsequent realized returns.

As hypothesized in other studies, simple correlations reveal that bankruptcy

risk is negatively related to firm size and positively related to book-to-market...


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