An empirical investigation of the dynamics of financial distress.

摘要

In this dissertation, I conduct a comprehensive empirical analysis of financial distress among U.S. publicly-traded non-financial corporations. I provide two significant contributions to the corporate finance literature, as detailed in Parts I and II. In Part I, I develop and test a parsimonious model that measures a firm's financial condition. A firm's Financial Condition Score (FCS) is based on three variables: the firm's size, its leverage, and the standard deviation of the firm's assets (imputed using the firm's stock returns and the Black-Scholes Option Pricing Model). Initially, I estimate the coefficients for these variables for year-end t by means of a probit regression of rated firms' Standard & Poor's numerical credit rating. Then I use these estimated coefficients to calculate a FCS for all firms, both rated and unrated. FCS are calculated for 3,689, 3,910, and 4,777 firms at years-end 1988, 1993, and 1998, respectively. These FCS are effective in sorting firms according to their future failure rates; the vast majority of firms that delist for performance (i.e., 'fail') by year-end t + 3 sort into the two highest FCS (i.e., highest-risk) quintiles.; In Part II, I focus on the most distressed firms, defined at year-end t as those firms in the highest-risk FCS quintile. I examine year t + 1 cash-flow data for these firms, especially their net cash flows from operations, investment, and (external) financing activities, and the relation between these cash flows (in isolation and in tandem) and failure rates as of year-end t + 3. Among the major results, I find evidence of a strong inverse relation between operating performance during distress and failure rates. Distressed firms that issue debt are more likely to fail than distressed firms that issue equity. Finally, distressed firms issue equity as often as, and sometimes more often than, they issue debt. The empirical results have implications for several important hypotheses in corporate finance, including the Traditional Tradeoff Theory and the Pecking Order Hypothesis, among others.