Search
 

Big Price Tag on Corporate Defaults (Stanford Business)

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

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.

Stanford’s Ilya Strebulaev has been analyzing defaults for years and has found that companies with large stores of cash are more likely to default, because executives hoard cash when they’re worried, and that companies often wait to liquidate projects until a downturn in the industry in an effort to escape notice.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account?

NOT FOR REPRINT

© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Treasury and Risk

Treasury and Risk

Treasury and Risk Staff Writers

More from this author

 

Recommended Stories

Investments Shift away from Bank Deposits

Investments Shift away from Bank Deposits

Tom Hunt |

The 2023 AFP Liquidity Survey found that treasurers are reducing bank deposits and moving investments toward more secure vehicles, reflecting the U.S. economic climate of 2022 and the bank failures of 2023.

Fed Leaves Rates Unchanged

Fed Leaves Rates Unchanged

Craig Torres |

The majority of FOMC members expect to enact another rate hike before the end of this year.

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2023 ALM Global, LLC. All Rights Reserved.