Financial Distress and Corporate Performance

Journal of Finance - Tập 49 Số 3 - Trang 1015-1040 - 1994
Tim C. Opler, Sheridan Titman1
1Opler is from Southern Methodist University. Titman is from Boston College. We appreciate helpful comments from Brian Betker, Robert Gertner, Jean Helwege, Steve Kaplan, Vojislav Maksimovic, Ralph Walkling, Mike Vetsuypens, and seminar participants at the 1994 American Finance Association Meetings, the 1993 European Finance Association Meetings, the Haute Etudes Commerciales International Corporate Finance Symposium, the 1992 National Bureau of Economic Research Summer Institute, the Texas Finance Symposium, the Board of Governors of the Federal Reserve, Hong Kong University of Science and Technology, INSEAD, Ohio State University, and Tilburg University.

Tóm tắt

AbstractThis study finds that highly leveraged firms lose substantial market share to their more conservatively financed competitors in industry downturns. Specifically, firms in the top leverage decile in industries that experience output contractions see their sales decline by 26 percent more than do firms in the bottom leverage decile. A similar decline takes place in the market value of equity. These findings are consistent with the view that the indirect costs of financial distress are significant and positive. Consistent with the theory that firms with specialized products are especially vulnerable to financial distress, we find that highly leveraged firms that engage in research and development suffer the most in economically distressed periods. We also find that the adverse consequences of leverage are more pronounced in concentrated industries.

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Thông tin xuất bản

Journal of Finance

Tập 49 Số 3

1015-1040

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