The Relationship between Bankruptcy Model Predictions and Stock Market Perceptions of Bankruptcy

Michael T. Dugan, Timothy B. Forsyth

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

This study uses a cumulative sum technique to determine the point at which the stock market first perceives that a firm may file for bankruptcy. The study then attempts to identify information, whether from financial statements or from other sources, that may have influenced the market in its reassessment of the firm's prospects. The results indicate that the switching point of the mean and variance of stock returns appears to be related both to financial statement information (as measured by changes in bankruptcy model probability assessments) and the release of unfavorable news in the Wall Street Journal.

Original languageEnglish (US)
Pages (from-to)507-527
Number of pages21
JournalFinancial Review
Volume30
Issue number3
DOIs
StatePublished - Aug 1995
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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