The market characteristics of failed companies: Extensions and further evidence

Abstract

This article presents an analysis of the market characteristics of failed companies. The analysis includes an identification of their systematic characteristics, examination of the characteristics and timing of their continuous price adjustment prior to failure, comparison of the characteristics and timing of their continuous price adjustment during an economic upswing and downswing and a contrast of the characteristics and timing of the continuous price adjustment of mining companies and industrial companies. A description of the experimental design is also presented in the study. The major findings of the study are: failed companies have a higher systematic risk, than the a-priori value of one and that the market on average adjusts the prices of failed companies approximately thirty months prior to failure. Finally, the results suggest that mining companies have a shorter price adjustment period than industrial companies.