Evaluation of Financial Distress Costs of Innovative Companies

  • Elena Y. Makeeva National Research University Higher School of Economics, Moscow, Russia https://orcid.org/0000-0002-5821-4496
  • Margarita O. Khugaeva Financial University under the Government of the Russian Federation, Moscow, Russia

Аннотация

Over the last few decades investments in research and development (R&D) projects have risen significantly. Many experts have found a positive relationship between R&D expenses and a company’s value. However, investments in innovations are characterized by a high level of uncertainty. Often innovations generate income only in long run. These factors increase the probability of firms’ financial distress considerably. Thus, the aim of the present paper is to evaluate financial distress costs at companies that invest in research and development projects. The study covers 389 innovative firms over the period from 2006 to 2015. The analysis is based on a direct and indirect costs evaluation. The first are estimated through panel logistic regression. Indirect costs are calculated as unexpected losses or profits relative to industry indicators. The paper confirms the existence of relation between R&D expenses and financial instability. The results of the research show that the total financial distress costs of innovative companies amount to 7.95% of total assets or 11.78% of the value of a company on average.

Скачивания

Данные скачивания пока не доступны.

Литература

REFERENCES

Altman E. I. 1968. Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance 23 (4): 589–609.

Altman E. I. 1984. A further empirical investigation of the bankruptcy cost question. Journal of Finance 39 (4): 1067–1089.

Andrade G., Kaplan S. N. 1998. How costly is financial (not economic) distress? Evidence from highly leveraged transactions that became distressed. Journal of Finance 53 (5): 1443–1493.

Bhabra G. S., Yao Y. 2011. Is bankruptcy costly? Recent evidence on the magnitude and determinants of indirect bankruptcy costs. Journal of Applied Finance & Banking 1 (2): 39–68.

Bris A., Welch I., Zhu N. 2006. The costs of bankruptcy: Chapter 7 liquidation versus Chapter 11 reorganization. Journal of Finance 61 (3): 1253–1303.

Bulot N., Salamudin N., Abdoh W. M. 2014. The size and determinants of indirect financial distress costs. GSTF Journal on Business Review (GBR) 3 (4): 8–17.

Bulot N., Salamudin N., Aziz R. 2017. The size of indirect financial distress costs: Which variable is reliably important? Journal Intelek 12 (1): 12–20.

Charalambakis E., Garrett I. 2016. On the prediction of financial distress in developed and emerging markets: Does the choice of accounting and market information matter? A comparison of UK and Indian Firms. Review of Quantitative Finance and Accounting 47 (1): 1–28.

Chen J., Marshall B., Zhang J., Ganesh S. 2006. Financial distress prediction in China. Review of Pacific Basin Financial Markets and Policies 9 (2): 317–336.

Fedorova E. A., Gilenko E. V., Dovzhenko S. E. 2013. Models for bankruptcy forecasting: Case study of Russian enterprises. Studies on Russian Economic Development 24 (2): 159–164.

Ho C.-Y., McCarthy P., Yang Y., Ye X. 2013. Bankruptcy in the pulp and paper industry: Market’s reaction and prediction. Empirical Economics 45 (3): 1205–1232.

Hortaçsu A., Matvos G., Syverson C., Venkataraman S. 2013. Indirect costs of financial distress in durable goods industries: The case of auto manufacturers. Review of Financial Studies 26 (5): 1248–1290.

Jones S., Hensher D. A. 2004. Predicting firm financial distress: A mixed logit model. Accounting Review 79 (4): 1011–1038.

Kwansa F. A., Cho M. H. 1995. Bankruptcy cost and capital structure: The significance of indirect cost. International Journal of Hospitality Management 14 (3/4): 339–350.

Laitinen E. K., Suvas A. 2016. Financial distress prediction in an international context: Moderating effects of Hofstede’s original cultural dimensions. Journal of Behavioral and Experimental Finance 9: 98–118.

LoPucki L. M., Doherty J. W. 2004. The determinants of professional fees in large bankruptcy reorganization cases. Journal of Empirical Legal Studies 1 (1): 111–141.

Makeeva E., Bakurova A. 2012. Forecasting bankruptcy oil and gas companies using neural networks. Journal of Corporate Finance Research (3): 22–30. (In Russian)

Mansi S., Maxwell W. F., Zhang A. 2012. Bankruptcy prediction models and the cost of debt. Journal of Fixed Income 21 (4): 25–42.

Ohlson J. A. 1980. Financial ratios and the probabilistic prediction of bankruptcy. Journal of Accounting Research 18 (1): 109–131.

Opler T. C., Titman S. 1994. Financial distress and corporate performance. Journal of Finance 49 (3): 1015–1040.

Pham T., Chow D. 1989. Some estimated of direct and indirect bankruptcy costs in Australia: September 1978 – May 1983. Australian Journal of Management 14 (1): 75–95.

Thorburn K. S. 2000. Bankruptcy auctions: Costs, debt recovery, and firm survival. Journal of Financial Economics 58 (3): 337–368.

Warner J. B. 1977. Bankruptcy costs: Some evidence. Journal of Finance 32 (2): 337–347.

Weiss L. A. 1990. Bankruptcy resolution: Direct costs and violation of priority of claims. Journal of Financial Economics 27 (2): 285–314.

Wijantini W. 2007. The indirect costs of financial distress in Indonesia. Gadjah Mada International Journal of Business 9 (2): 157–186.

Zhang W. 2015. R&D investment and distress risk. Journal of Empirical Finance 32 (C): 94–114.

Zhdanov V. Y., Afanasyeva O. A. 2011. Models of bankruptcy risk for companies of aircraft industry. Journal of Corporate Finance Research (4): 77–89. (In Russian)
Опубликован
2018-04-02
Как цитировать
Makeeva, E., & Khugaeva, M. (2018). Evaluation of Financial Distress Costs of Innovative Companies. Российский журнал менеджмента, 16(1), 37–62. https://doi.org/10.21638/11701/spbu18.2018.102
Раздел
Теоретические и эмпирические исследования