Answered By: Peter Z McKay Last Updated: Oct 29, 2014 Views: 4403
Corporate Financial Distress and Bankruptcy
By Edward I. Altman and Edith Hotchkiss.
Wiley, 3rd ed., 2006. ISBN: 9780471691891
A comprehensive look at the enormous growth and evolution of distressed debt, corporate bankruptcy, and credit risk default. This Third Edition of the most authoritative finance book on the topic updates and expands its discussion of corporate distress and bankruptcy, as well as the related markets dealing with high-yield and distressed debt, and offers state-of-the-art analysis and research on the costs of bankruptcy, credit default prediction, the post-emergence period performance of bankrupt firms, and more.
- The Risk-Adjusted Cost of Financial Distress
By Heitor Almeida and Thomas Philippon
Journal of Finance 62 (6) Dec. 2007, pp 2557-2586.
Financial distress is more likely to happen in bad times. The present value of distress costs therefore depends on risk premia. We estimate this value using risk-adjusted default probabilities derived from corporate bond spreads. For a BBB-rated firm, our benchmark calculations show that the NPV of distress is 4.5% of predistress value. In contrast, a valuation that ignores risk premia generates an NPV of 1.4%. We show that marginal distress costs can be as large as the marginal tax benefits of debt derived by Graham (2000). Thus, distress risk premia can help explain why firms appear to use debt conservatively.