An Empirical Investigation on the Relationship between Risk of Bankruptcy and Stock Return

  • Rohani Md-Rus UUM College of Business University Utara Malaysia

Abstract

The main objective of the paper is to find out whether bankruptcy risk is a systematic risk. In particular, we investigate the contribution of size, bookto-market, excess market returns and bankruptcy probability in explaining returns. We allocate stocks into portfolios according to the probability of bankruptcy from the hazard model. Results show that bankruptcy risk is not a systematic risk. The results consistently show that excess market returns and size have strong power to explain returns in the UK for the period from 1988 to 1997. Book-to-market and bankruptcy risk only matt er in portfolios with higher probability of bankruptcy.
 
Keyword: Bankruptcy risk, bankruptcy probability, hazard model. JEL Classification: G12, G33
Published
2011-06-30
How to Cite
MD-RUS, Rohani. An Empirical Investigation on the Relationship between Risk of Bankruptcy and Stock Return. International Journal of Management Studies, [S.l.], v. 18, n. 1, p. 117-134, june 2011. ISSN 2180-2467. Available at: <http://e-journal.uum.edu.my/index.php/ijms/article/view/10203>. Date accessed: 19 jan. 2022.