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Equity returns of distressed equity issuers

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  • Park, James L.

Abstract

Theoretical and empirical studies show a strong positive correlation between distress and equity issuance which suggests that low future returns of distressed firms (i.e., distress anomaly) could be related to the equity issuance puzzle. Upon testing this conjecture, this study finds that low returns of distressed firms are only observed in firms issuing the most equity, and this relationship is robust against alternative specifications. Testing whether distressed equity issuers have reduced exposure to common risk factors renders insignificant results. In conclusion, this study confines the distress anomaly to a subset of firms that issue the most equity.

Suggested Citation

  • Park, James L., 2015. "Equity returns of distressed equity issuers," Finance Research Letters, Elsevier, vol. 14(C), pages 93-103.
    • Handle: RePEc:eee:finlet:v:14:y:2015:i:c:p:93-103
    DOI: 10.1016/j.frl.2015.05.011
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    References listed on IDEAS

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    2. Mselmi, Nada & Hamza, Taher & Lahiani, Amine & Shahbaz, Muhammad, 2019. "Pricing corporate financial distress: Empirical evidence from the French stock market," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 13-27.
    3. Soler-Domínguez, Amparo & Matallín-Sáez, Juan Carlos, 2016. "Socially (ir)responsible investing? The performance of the VICEX Fund from a business cycle perspective," Finance Research Letters, Elsevier, vol. 16(C), pages 190-195.

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    More about this item

    Keywords

    Distress anomaly; Equity issuance puzzle;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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