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Big Price Tag on Corporate Defaults (Stanford Business)

New research suggests default can cut a companys market value by an average of 21.7%.

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Defaults and bankruptcies cause a larger decline in a company’s market value than is generally realized, according to a study by three professors at Stanford University and the University of Toronto. They estimate that a default—which can range from a missed bond payment to a bankruptcy filing—reduces a company’s total market value by 21.7% on average, and cuts the value of an investment-grade company by 30%. A previous study estimated that a default costs a company around 20% of its total asset value.

Treasury and Risk

Treasury and Risk

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