Distress Anomaly and Shareholder Risk: International Evidence

Assaf Eisdorfer, Amit Goyal, Alexei Zhdanov

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

Financially distressed stocks in the United States earn puzzlingly low returns giving rise to the distress risk anomaly. We provide evidence that the anomaly exists in developed countries, but not in emerging ones. Using cross-country analyses, we explore several potential drivers of returns to distressed stocks. The distress anomaly is stronger in countries with stronger takeover legislation, lower barriers to arbitrage, and higher information transparency. In contrast, shareholder bargaining power and expected stock return skewness in a country do not affect the anomaly. These findings suggest that various aspects of shareholders’ risk play an important role in shaping distressed stocks returns.

Original languageEnglish (US)
Pages (from-to)553-581
Number of pages29
JournalFinancial Management
Volume47
Issue number3
DOIs
StatePublished - Sep 1 2018

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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