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Giovanna Nicodano (Collegio Carlo Alberto)

10 December 2018 @ 12:45


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10 December 2018
Event Category:
Academic Events

“Does Bankruptcy Risk Increase Value?”

We show that bankruptcy exposure increases ex-post average firm value due to a survivorship bias. The reason is that bankruptcy cancels rms with the lowest realized cash ows from databases. Such bias gives rise to known pricing puzzles. It generates a discount on diversifi ed companies when diversi fication helps their survival. Moreover, it distorts inference on fi rm efficiency, turning a diversi fication premium, due to lower expected bankruptcy costs, into a discount. This insight fi nds support in both the excess survival of US diversi ed firms and its co-variation with their discount.