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

Authors

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

DOI:

https://doi.org/10.32890/ijms2011.18.1.6

Keywords:

Bankruptcy risk, bankruptcy probability, hazard model

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

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Published

30-06-2011

Issue

Vol. 18 No. 1 (2011): International Journal of Management Studies (IJMS) Vol. 18, No.1 June 2011

Section

Articles

Research impact

Harvested 2026-09-08
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Identifiers DOI 10.32890/ijms2011.18.1.6