Bankruptcy risk

Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.

Bankruptcy Risk

The risk that an individual or especially a company may be unable to service its debts. Bankruptcy risk is greater when the individual or firm has little or no cash flow, or when it manages its assets poorly. Banks assess bankruptcy risk when considering whether to make a loan. It is also called insolvency risk.
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If we are able to reject these null hypotheses, then we have evidence, consistent with the arguments of Chan and Chen (1991) and Fama and French (1992), that the size and B/M factors are proxying for bankruptcy risk.
But many small and midsize companies, laden with slumping revenues and excessive debts, continue to face a high bankruptcy risk, the company said in the report.
It appears that a high portion of the cyclical variation in bankruptcy risk is captured in the explanatory variables (see Table 1), which shows that there is a relatively stable relationship between predicted and actual probability of bankruptcy, irrespective of the cyclical phase.
Although the bankruptcy risk of the issuer is removed from the transaction, the smooth receipt of cash flow is essential to paying investors interest and principal promptly.
Companies that score high in the Most Trustworthy rankings also had to rank high in GMI's Equity Risk Ranking, which indicates a positive forecast for equity return and minimal likelihood of financial distress as measured by GMI's Bankruptcy Risk model.
The assessment of each company includes factors such as high-risk events, revenue and expense recognition methods, SEC actions and bankruptcy risk as indicators of a company's credibility.
By focusing explicitly on bankruptcy risk, it extends previous work on stock market reaction to voluntary sell-offs.
They also had to rank high in GMI's Equity Risk Ranking, which indicates a positive forecast for equity returns, and have minimal likelihood of financial distress as measured by GMI's Bankruptcy Risk model.
GMI assigns each company an accounting and governance risk score (AGR) based on factors like high-risk events, revenue and expense recognition methods, SEC actions and bankruptcy risk.
Therefore, because of this stronger market reaction and because of the fact that those companies later file for bankruptcy, it appears that the rating agencies should have downgraded those companies' bonds even further to include the bankruptcy risk that the market itself predicts.
Companies also needed to demonstrate a minimal likelihood of financial distress, as measured by GMI's Bankruptcy Risk model.
In assessing each company, GMI considers factors including high-risk events, revenue and expense recognition methods, SEC actions, and bankruptcy risk as indicators of a company's credibility.