Financial distress risk and stock returns: evidence of the Malaysian stock market

Mohd Yusof, Mohd Azhar (2008) Financial distress risk and stock returns: evidence of the Malaysian stock market. Masters thesis, University of Malaya.

[img] PDF
Final report_Azhar(CGA040155).pdf

Download (482kB)


If financial distress risk can be accurately predicted, the stock price of high distress risk firms should be discounted so as to enable investors to earn higher expected returns. This is true if the distress risk is undiversifiable or systematic. This study sets out a direct approach to examining the risk-return relationship of distress-listed companies in Malaysia. Using Z-Score bankruptcy prediction model as the proxy of distress risk and the subsequent realised stock returns of the distress-listed companies as a proxy of systematic risk, this study finds that the distress risk and the size and book-to-market equity effect are not statistically significant enough to explain the expected stock returns. It is also found that the theoretical expectation of the size and book-to-market equity effect on distress risk also does not hold in the case of the Malaysian distress listed-firms. However, similar to the findings of Griffin and Lemmon (2002), there is evidence of a significant inverse relationship between distress risk and book-to-market equity indicating that Malaysian distress listed-companies with higher probability of distress risk display lower book-to-market value of equity ratio. This study reports that it is inconclusive to deduce that distress risk is a systematic risk in relation to the Malaysian stock market.

Item Type: Thesis (Masters)
Uncontrolled Keywords: Financial distress risk, Stock returns, Malaysian stock market, Distress-listed companies-Malaysia, Z-Score bankruptcy prediction
Subjects: H Social Sciences > HG Finance
Date Deposited: 23 Jul 2013 03:59
Last Modified: 23 Jul 2013 03:59

Actions (login required)

View Item View Item