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The early stages of financial distress

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  • Richard Whitaker

Abstract

More firms enter financial distress as a result of poor management than as a result of economic distress. Management actions are a significant determinant of recovery and improvement in the industry-adjusted market value for firms entering financial distress as a result of poor management, but not for firms entering as a result of economic distress. In the early stages of financial distress, median firm operating income measured on an unadjusted basis and after controlling for other factors which alter firm performance increases significantly. The results support Jensen’s hypothesis that financial distress triggers corrective action which improves firm performance. (JEL G300) Copyright Springer 1999

Suggested Citation

  • Richard Whitaker, 1999. "The early stages of financial distress," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(2), pages 123-132, June.
    • Handle: RePEc:spr:jecfin:v:23:y:1999:i:2:p:123-132
    DOI: 10.1007/BF02745946
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    References listed on IDEAS

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    1. Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-347, May.
    2. John, Kose & Lang, Larry H P & Netter, Jeffry, 1992. "The Voluntary Restructuring of Large Firms in Response to Performance Decline," Journal of Finance, American Finance Association, vol. 47(3), pages 891-917, July.
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