Distress Risk, Diversification and Assets Pricing

• Main Authors: Hong-Rai Huang, 黃弘瑞
• Other Authors: Jin-Ray Lu
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/71312517670658337669

碩士 === 國立東華大學 === 會計與財務金融碩士學位學程 === 98 === This study discusses the interrelationships between the distress risk and corporate diversification, and further examines the essence of distress risk to find out whether it contain the characteristic of systematic risk, which would diminish the influence of diversification strategy related to distress risk declining. This study firstly compares the difference of the diversification scales between the groups with high distress risk and low distress risk, based on the bankrupting predictive model purposed by Ohlson (1980). Considering four measures about diversification levels into the O-score model, we comprehend whether firm diversifications have some explanation powers for distress risk. Secondly, this study provides two test results as portfolio analysis and regression model to survey whether the distress risk is systematic in the empirical framework of Fama and French (1993) three factor model and Carhart (1997) four-factor model. Our results find that there is a significant correlation between diversification and distress risk. Besides, this study also provides evidence that the higher degree of distress risk, then distress risk is more systematic. In other word, when a firm trends to bankruptcy, then the firm is weaker to avoid bankruptcy by implementing diversification strategy.