We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Measuring Distress Risk: The Effect of R&D Intensity.
- Authors
FRANZEN, LAUREL A.; RODGERS, KIMBERLY J.; SIMIN, TIMOTHY T.
- Abstract
Because of upward trends in research and development activity, accounting measures of financial distress have become less accurate. We document that (1) higher research and development spending increases the likelihood of misclassifying solvent firms, (2) adjusting for conservative accounting of research and development increases the number of correctly identified distressed firms, and (3) adjusted measures of distress alleviate previously documented anomalously low returns of large, high distress risk, low book-to-market firms. The results hold after updating stale parameters and under various tax assumptions. Our evidence raises concerns about interpretation of extant literature that relies on accounting measures of distress.
- Subjects
FINANCIAL crises; ECONOMIC history; FINANCIAL risk; BANKRUPTCY; LIABILITIES (Accounting); RESEARCH &; development
- Publication
Journal of Finance (Wiley-Blackwell), 2007, Vol 62, Issue 6, p2931
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.2007.01297.x