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Multiple States of Financially Distressed Companies : Tests using a Competing-Risks Model
Australasian Accounting, Business and Finance Journal
  • Nongnit Chancharat, University of Wollongong
  • Gary Tian, University of Wollongong
  • Pamela Davy, University of Wollongong
  • Michael McCrae, University of Wollongong
  • Sudhir Lodh, University of Wollongong
Abstract

This study examines the determinants of multiple states of financial distress by applying a competing-risks model. It investigates the effect of financial ratios, market-based variables and company-specific variables, including company age, size and squared size on three different states of corporate financial distress: active companies; distressed external administration companies; and distressed takeover, merger or acquisition companies. A sample of 1,081 publicly listed Australian non-financial companies over the period 1989 to 2005 using a competing-risks model is used to determine the possible differences in the factors of entering various states of financial distress. It is found that specifically, distressed external administration companies have a higher leverage, lower past excess returns and a larger size; while distressed takeover, merger or acquisition companies have a lower leverage, a higher capital utilisation efficiency and a larger size compared to active companies. Comparing the results from both the single-risk model and the competing-risks model reveals the need to distinguish between financial distress states.

Citation Information
Nongnit Chancharat, Gary Tian, Pamela Davy, Michael McCrae, et al.. "Multiple States of Financially Distressed Companies : Tests using a Competing-Risks Model" p. 27 - 44
Available at: http://works.bepress.com/gary-tian/133/