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Scholars Day 2007, Wednesday, April 11

Financially Distressed Firms and the Turnaround Process

Most investors prefer to avoid investing in firms that are severely financially distressed. These firms often end up in bankruptcy with little or no return to equity investors. On the other hand, many of these firms go through a company turnaround process with stock prices rebounding significantly. This paper uses COMPUSTAT data from 1988 to the present to categorize financially distressed firms using three different measurements. The first measurement approach is to list all firms with negative earnings for three consecutive years. The second measurement is to look at all firms with negative book equity. The third approach is to look at firms with declining revenues each year for three consecutive years. The paper answers the following major questions: A) How many of these firms survive? B) How long on average does it take a surviving company to “turnaround?”

Presenters: Tsvetomira Gerova (Undergraduate Student)
Ralph Trecartin (Faculty)
Topic: Business
Location: 123 Hartwell
Time: 9 am (Session I)