A resolution of the distress risk and leverage puzzles in the cross section of stock returns

• 成果类型: Article
• 署名作者: George, Thomas J.; Hwang, Chuan-Yang
• 署名单位: Nanyang Technological University; University of Houston System; University of Houston
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2009.11.003
• 发表日期: 2010
• 页码: 56-79
• 关键词: Financial distress; leverage; Bankruptcy costs; Cross section of returns

摘要

We revisit findings that returns are negatively related to financial distress intensity and leverage. These are puzzles under frictionless capital markets assumptions but are consistent with optimizing firms that differ in their exposure to financial distress costs. Firms with high costs choose low leverage to avoid distress, but they retain exposure to the systematic risk of bearing such costs in low states. Empirical results are consistent with this explanation. The return premiums to low leverage and low distress are significant in raw returns, and even stronger in risk-adjusted returns. When in distress, low-leverage firms suffer more than high-leverage firms as measured by a deterioration in accounting operating performance and heightened exposure to systematic risk. The connection between return premiums and distress costs is apparent in subperiod evidence. Both are small or insignificant prior to 1980 and larger and significant thereafter. (C) 2009 Elsevier B.V. All rights reserved.