Is the Risk of Bankruptcy a Systematic Risk?
Article first published online: 17 DEC 2002
The American Finance Association 1998
The Journal of Finance
Volume 53, Issue 3, pages 1131–1147, June 1998
How to Cite
Dichev, I. D. (1998), Is the Risk of Bankruptcy a Systematic Risk?. The Journal of Finance, 53: 1131–1147. doi: 10.1111/0022-1082.00046
- Issue published online: 17 DEC 2002
- Article first published online: 17 DEC 2002
- Cited By
Several studies suggest that a firm distress risk factor could be behind the size and the book-to-market effects. A natural proxy for firm distress is bankruptcy risk. If bankruptcy risk is systematic, one would expect a positive association between bankruptcy risk and subsequent realized returns. However, results demonstrate that bankruptcy risk is not rewarded by higher returns. Thus, a distress factor is unlikely to account for the size and book-to-market effects. Surprisingly, firms with high bankruptcy risk earn lower than average returns since 1980. A risk-based explanation cannot fully explain the anomalous evidence.