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AHURI is a national independent research network with an expert not-for-profit research management company, AHURI Limited, at its centre. AHURI has a public good mission to deliver high quality research that influences policy development to improve the housing and urban environments of all Australians. Through active engagement, AHURI's work informs the policies and practices of governments and the housing and urban development industries, and stimulates debate in the broader Australian community. AHURI undertakes evidence-based policy development on a range of issues, including: housing and labour markets, urban growth and renewal, planning and infrastructure development, housing supply and affordability, homelessness, economic productivity, and social cohesion and wellbeing. We would like to extend special thanks to the Data Linkage Branch of the Western Australian Department of Health and the Western Australian Housing Authority for their support and assistance with respect to the linkage of health and housing data and the implementation of the public housing Tenant Survey. We also wish to thank Jessica Smith, Georgina Carson and Daniel Sutton for their excellent research assistance on the study. DISCLAIMER The opinions in this report reflect the views of the authors and do not necessarily reflect those of AHURI Limited, its Board or its funding organisations. No responsibility is accepted by AHURI Limited, its Board or funders for the accuracy or omission of any statement, opinion, advice or information in this publication. AHURI JOURNAL AHURI Final Report journal series is a refereed series presenting the results of original research to a diverse readership of policy-makers, researchers and practitioners. PEER REVIEW STATEMENT An objective assessment of reports published in the AHURI journal series by carefully selected experts in the field ensures that material published is of the highest quality.

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Related reports and documents Inquiry into social impact investment for housing and homelessness outcomes http://www.ahuri.edu.au/research/research-in-progress/inquiry-71100 AHURI report 290 ii AHURI AHURI is a national independent research network with an expert not-for-profit research management company, AHURI Limited, at its centre. AHURI's mission is to deliver high quality research that influences policy development and practice change to improve the housing and urban environments of all Australians. Using high quality, independent evidence and through active, managed engagement, AHURI works to inform the policies and practices of governments and the housing and urban development industries, and stimulate debate in the broader Australian community. AHURI undertakes evidence-based policy development on a range of priority policy topics that are of interest to our audience groups, including housing and labour markets, urban growth and renewal, planning and infrastructure development, housing supply and affordability, homelessness, economic productivity, and social cohesion and wellbeing. Acknowledgements This material was produced with funding from the Australian Government and state and territory governments. AHURI Limited gratefully acknowledges the financial and other support it has received from these governments, without which this work would not have been possible. AHURI Limited also gratefully acknowledges the contributions, both financial and in-kind, of its university research partners who have helped make the completion of this material possible. The research team would like to acknowledge the excellent research contributions provided by Dr Ami Seivwright, Emma Crane and Zoe Callis to this report. Disclaimer The opinions in this report reflect the views of the authors and do not necessarily reflect those of AHURI Limited, its Board, its funding organisations or Inquiry panel members. No responsibility is accepted by AHURI Limited, its Board or funders for the accuracy or omission of any statement, opinion, advice or information in this publication. AHURI journal AHURI Final Report journal series is a refereed series presenting the results of original research to a diverse readership of policy-makers, researchers and practitioners. Peer review statement An objective assessment of reports published in the AHURI journal series by carefully selected experts in the field ensures that material published is of the highest quality. The AHURI journal series employs a double-blind peer review of the full report, where anonymity is strictly observed between authors and referees.

PurposeEarlier research found that firms with the highest distress risk have low book‐to‐market (B/M) ratios and low returns. This paper aims to examine the robustness of those's results and provide further evidence that high distress‐risk firms do not enjoy the same high returns earned by high B/M firms and that distress risk is unlikely to explain the Fama and French high‐minus‐low (HML) B/M factor.Design/methodology/approachA distress‐risk measure, distressed‐minus‐solvent (DMS), is calculated and a range of zero investment distress‐risk trading strategies is investigated. Value‐ and equal‐weighted portfolios are examined both with negative book‐equity firms and without. These most distressed firms have low or negative B/M values and would either not be included in the Fama and French sample or included in the low B/M portfolio.FindingsThe paper finds that the DMS factor is negative and significant, and none of the zero investment strategies earns significantly positive returns.Research limitations/implicationsThe findings suggest that exposure to distress risk does not earns investors a positive risk premium. It appears that over the period examined, market inefficiencies drive the market value and returns of high distress‐risk firms.Originality/valueThe distress‐risk premium is shown to be negative and, therefore, cannot be driven by bankruptcy risk alone. The negative premium is not consistent with a financial distress explanation for the Fama and French HML factor.