Abstract

This study documents that investors exercise their liquidation option on firms facing less severe financial distress than bankruptcy filings or negative earnings. Our sample is 124 firms which service their first time violation of debt covenants. We find that the valuation shift from earnings to book value of equity in the violation manifestation period is reversed in the post-violation recovery period. This suggests that the valuation distortion in the pre-violation period is temporary rather than permanent.

Publication Date

2002

Comments

Advances in financial Planning and Forecasting, Vol. 11, pp. 151-163Note: imported from RIT’s Digital Media Library running on DSpace to RIT Scholar Works in February 2014.

Document Type

Article

Department, Program, or Center

Accounting (SCB)

Campus

RIT – Main Campus

Share

COinS