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Multiple states of financially distressed companies : tests using a competing-risks model

Journal Article


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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.

Authors


  •   Chancharat, Nongnit (external author)
  •   Tian, Gary G. (external author)
  •   Davy, Pam J.
  •   McCrae, Michael
  •   Lodh, Sudhir C. (external author)

Publication Date


  • 2010

Citation


  • Chancharat, N., Tian, G. G., Davy, P. J., McCrae, M. & Lodh, S. C. (2010). Multiple states of financially distressed companies : tests using a competing-risks model. Australasian Accounting Business and Finance Journal, 4 (4), 27-44.

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1106&context=aabfj

Ro Metadata Url


  • http://ro.uow.edu.au/aabfj/vol4/iss4/3/

Number Of Pages


  • 17

Start Page


  • 27

End Page


  • 44

Volume


  • 4

Issue


  • 4

Place Of Publication


  • http://ro.uow.edu.au/aabfj/vol4/iss4/3/

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.

Authors


  •   Chancharat, Nongnit (external author)
  •   Tian, Gary G. (external author)
  •   Davy, Pam J.
  •   McCrae, Michael
  •   Lodh, Sudhir C. (external author)

Publication Date


  • 2010

Citation


  • Chancharat, N., Tian, G. G., Davy, P. J., McCrae, M. & Lodh, S. C. (2010). Multiple states of financially distressed companies : tests using a competing-risks model. Australasian Accounting Business and Finance Journal, 4 (4), 27-44.

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1106&context=aabfj

Ro Metadata Url


  • http://ro.uow.edu.au/aabfj/vol4/iss4/3/

Number Of Pages


  • 17

Start Page


  • 27

End Page


  • 44

Volume


  • 4

Issue


  • 4

Place Of Publication


  • http://ro.uow.edu.au/aabfj/vol4/iss4/3/