Distress Anomaly and Shareholder Risk: International Evidence

36 Pages Posted: 21 May 2013 Last revised: 2 Oct 2015

See all articles by Assaf Eisdorfer

Assaf Eisdorfer

University of Connecticut - Department of Finance

Amit Goyal

University of Lausanne; Swiss Finance Institute

Alexei Zhdanov

Pennsylvania State University

Date Written: December 6, 2013

Abstract

Financially distressed stocks in the U.S. earn puzzlingly low returns giving rise to the distress risk anomaly. In this paper we provide evidence on the performance of distressed stocks in 34 different countries. We find that the distress anomaly appears to exist in developed countries but not in emerging ones. Using cross-country analyses we explore several alternative potential drivers of returns to distressed stocks. We find that the distress anomaly is stronger in countries with stronger takeover legislation, lower barriers to arbitrage, higher information transparency, and easier access to new loans. We find a weak relation between the distress anomaly and debt enforcement risk, and a measure of country-level return skewness. We find no relation between the anomaly and the legal origin of a country. These findings suggest that various aspects of shareholders’ risk play an important role in shaping distressed stocks returns.

Keywords: Distress anomaly, International finance

JEL Classification: G12, G15

Suggested Citation

Eisdorfer, Assaf and Goyal, Amit and Zhdanov, Alexei, Distress Anomaly and Shareholder Risk: International Evidence (December 6, 2013). Paris December 2015 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2267611 or http://dx.doi.org/10.2139/ssrn.2267611

Assaf Eisdorfer (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Amit Goyal

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Alexei Zhdanov

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

HOME PAGE: http://www.alexeizhdanov.com

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