Does Bankruptcy Risk Increase Value? Puzzles and Diversification

65 Pages Posted: 4 Mar 2019 Last revised: 12 Mar 2019

See all articles by Michela Altieri

Michela Altieri

Vrije Universiteit Amsterdam

Giovanna Nicodano

University of Turin - Department ESOMAS; Collegio Carlo Alberto

Date Written: February 21, 2019


Stock markets price listed firms, while defaulted firms delist. Due to the lower profits of defaulted firms, the average stock price exceeds firm unconditional expected value. Such price-value wedge originates from a survivorship bias. The wedge is higher for those company types with lower survival probability. This bias thus explains the discount on diversified companies which survive to downturns, while the least profitable among focused companies default. This insight finds support in both the excess survival of US diversified firms compared to focused ones and its co-variation with their discount.

Keywords: diversification discount, survivorship bias, parent company discount, bankruptcy, coinsurance, contagion

JEL Classification: G32, D23, K19

Suggested Citation

Altieri, Michela and Nicodano, Giovanna, Does Bankruptcy Risk Increase Value? Puzzles and Diversification (February 21, 2019). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 600/2019. Available at SSRN: or

Michela Altieri (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV

Giovanna Nicodano

University of Turin - Department ESOMAS ( email )

Turin, 10134

HOME PAGE: http://

Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10121
390116705006 (Phone)

HOME PAGE: http://

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