Financial Distress Cost

Financial Distress Cost

The cost of liquidation. Financial distress costs include fees for lawyers and money needed to file paperwork. They also include the losses incurred from slowing or ceasing operations.
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However, Mian (1996), Brown (2001) and Bartram, Brown, and Fehle (2009) find little evidence that the use of currency derivatives is related to financial distress cost.
Foreign exchange exposure elasticity and financial distress
We define high (low) financial distress cost firms as the 250 firms with lowest (highest) Altman's Z-score.
International evidence on financial derivatives usage
16) As financially distressed firm may lose customers, suppliers, and/or employees depending on the characteristics of their products and labor contracts for example, financial distress costs are also assumed to be heterogeneous across firms in Purnanandam (2008).
Information asymmetry and foreign currency borrowing by small firms
Such a situation allows them to limit their financial distress costs (Frank & Goyal, Journal of Financial Economics, 2003) and to benefit from a tax advantage owing to the deductibility of a fictitious and undisbursed interest expense.
Financial behaviours of family and non-family firms in Belgium
If there are costs to using too much debt (for example, expected financial distress costs or personal taxes on interest income), then firms with the greatest benefit to shielding taxes (for example, firms facing higher income tax rates) should be the ones with the greatest incentives to use debt financing.
A summary of recent corporate tax research
When combining direct financial distress costs which primarily include the administrative costs, unpaid taxes/employee compensation and indirect financial distress costs which include the deterioration of the asset value and the loss of profitable opportunities, the estimates are indeed widespread: Warner (1977) reports that direct bankruptcy costs are 4% of market value one year prior to bankruptcy [J.
Estimates of financial distress costs revisited: evidence from TSE-listed firms
Because MIPS is equity with an after-tax cost similar to that of risky debt, issuing this security and using the proceeds to retire outstanding preferred stock enables us to isolate the impact of tax savings on common share value without the confounding influence of financial distress costs.
Raising Capital Using Monthly Income Preferred Stock: Market Reaction and Implications for Capital Structure Theory
These explanations suggest firms use derivatives to lower nondiversifiable costs that associated with market frictions, such as taxes, financial distress costs, and external financing costs.
Currency and interest-rate derivatives use in US firms
Direct financial distress costs have previously been examined by many authors (see, e.
The administrative costs of debt restructurings: some recent evidence
Such divestments allow a firm to avoid both direct and indirect financial distress costs.
Financial distress, asset sales, and lender monitoring
Examining the relation between asset characteristics and capital structures is, however, complicated by the fact that a firm,s vulnerability to financial distress costs is unobservable.
Liquidation costs and accounting data
Sample firms also attempt to reduce indirect financial distress costs by [TABULAR DATA FOR TABLE 1 OMITTED] minimizing the disruption in normal business activities that can accompany a traditional Chapter 11 filing.
An empirical examination of prepackaged bankruptcy

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