Does Bankruptcy Risk Increase Value? Puzzles and Diversification

M. Altieri, Giovanna Nicodano

Research output: Working paperProfessional

Abstract

Stock markets price listed firms, while defaulted firms delist. Due to the lower profits of defaulted firms, the average stock price exceeds firm unconditional expected value. Such price-value wedge originates from a survivorship bias. The wedge is higher for those company types with lower survival probability. This bias thus explains the discount on diversified companies which survive to downturns, while the least profitable among focused companies default. This insight finds support in both the excess survival of US diversified firms compared to focused ones and its co-variation with their discount.
LanguageEnglish
PublisherSSRN
Pages1
Number of pages60
Publication statusPublished - 2019

Publication series

NameECGI-Finance Working Paper
No.No 600/2019

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Bankruptcy
Diversification
Discount
Diversified firms
Survival probability
Expected value
Survivorship bias
Stock prices
Profit
Market price
Stock market

Cite this

Altieri, M., & Nicodano, G. (2019). Does Bankruptcy Risk Increase Value? Puzzles and Diversification. (pp. 1). (ECGI-Finance Working Paper; No. No 600/2019). SSRN.
Altieri, M. ; Nicodano, Giovanna. / Does Bankruptcy Risk Increase Value? Puzzles and Diversification. SSRN, 2019. pp. 1 (ECGI-Finance Working Paper; No 600/2019).
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Altieri, M & Nicodano, G 2019 'Does Bankruptcy Risk Increase Value? Puzzles and Diversification' ECGI-Finance Working Paper, no. No 600/2019, SSRN, pp. 1.

Does Bankruptcy Risk Increase Value? Puzzles and Diversification. / Altieri, M.; Nicodano, Giovanna.

SSRN, 2019. p. 1 (ECGI-Finance Working Paper; No. No 600/2019).

Research output: Working paperProfessional

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Altieri M, Nicodano G. Does Bankruptcy Risk Increase Value? Puzzles and Diversification. SSRN. 2019, p. 1. (ECGI-Finance Working Paper; No 600/2019).