The Risk-Adjusted Cost of Financial Distress  

Oleh:

Almeida, Heitor V. ; Philippon, Thomas

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 62 no. 6 (Dec. 2007), page 2557-2586.
Topik: Risk; Financial
Fulltext: p 2557.pdf (192.14KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

Financial distress is more likely to happen in bad times. The present value of distress costs therefore depends on risk premia. We estimate this value using risk-adjusted default probabilities derived from corporate bonds spreads. For a BBB-rated firm, our benchmark calculation show that the NPV of distress is 4.5% of predistress value. In contrast, a valuation that ignores risk premia generates an NPV of 1.4%. We show that marginal distress costs can be as large as the marginal tax benefits of debt derived by Graham (2000). Thus distress risk premia can help explain why firms appear to use debt conservatively.

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