How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed  

Oleh:

Andrade, Gregor ; Kaplan, Steven N.

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 53 no. 5 (Oct. 1998), page 1443-1494.
Topik: distress financial
Fulltext: p 1443.pdf (199.67KB)

Isi artikel

This paper studies thirty-one highly leveraged transactions ~HLTs! that become financially, not economically, distressed. The net effect of the HLT and financial distress ~from pretransaction to distress resolution, market- or industry-adjusted! is to increase value slightly. This finding strongly suggests that, overall, the HLTs of the late 1980s created value. We present quantitative and qualitative estimates of the ~direct and indirect! costs of financial distress and their determinants. We estimate financial distress costs to be 10 to 20 percent of firm value. For a subset of firms that do not experience an adverse economic shock, financial distress costs are negligible.

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