Is Bankruptcy Risk a Systematic Risk?  Evidence from Pakistan Stock Exchange

Chhapra, Imran Umer; Zehra, Iffat; Kashif, Muhammad; Rehan, Raja

doi:10.15408/etk.v19i1.11248

Cited by 5 publications

(6 citation statements)

References 32 publications

(52 reference statements)

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“…More often, researchers turn their attention to the analysis of systematic risk. Chhapra et al (2020) describe systematic risk as 'distress risk', for these risks are caused by market fluctuations that are beyond a company's control and can be harmful to companies, placing them in financial distress. Systematic risk cannot be mitigated through diversification, as this risk originates from fluctuations in market conditions.…”

Section: Risk In Financial Perspective: Unsystematic and Systematic Riskmentioning

confidence: 99%

Viability of Risk-return Trade-off within a South African Context

Robbetze

Swanepoel

2022

JAI

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Research aims: This study aimed to determine whether systematic risk and return are related to each other. It answered the research question: Is it realistic for investors to expect high returns when their investments are associated with more riskiness?Design/Methodology/Approach: Quantitative analysis was applied through a correlational research design. Secondary data were collected from the Integrated Real-time Equity System (IRESS). The Statistical Package for Social Sciences (SPSS) was utilised to measure a Pearson correlation coefficient and execute multiple regression analysis. This was done to test for the relationship between financial measurements of systematic risk and return, of sampled entities.Research findings: This research found that measures of systematic risk and return are not necessarily related when empirically analysed for sampled entities.Theoretical contribution/Originality: This paper indicated that the principle of the modern portfolio theory (MPT) should not be accepted as general truth. It should not be assumed that risk and return are linearly related in all financial markets under all economic circumstances. This premise is contrary to general financial management practice, where the MPT is universally accepted and even forms the basis of other financial theories.Research limitation: The use of the IRESS database posed a limitation in terms of sampling, as the database was frequently unable to present a complete set of data needed for statistical testing. Consequently, only 33 companies were sampled, as IRESS only made a complete set of required data available for these entities.

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Section: Risk In Financial Perspective: Unsystematic and Systematic Riskmentioning

confidence: 99%

Viability of Risk-return Trade-off within a South African Context

Robbetze

Swanepoel

2022

JAI

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“…Mselmi et al (2019) further explained that the absence of size and book-to-market factors led to financial distress risk becoming significant but left the proportion of return unexplained, as the model could not explain the return well. Chhapra et al (2020) investigated the relationship between default risk to represent financial distress and a cross-section of stock returns based on Pakistan's stock market using monthly returns between 2001 and 2016. They found that the stock of firms that were significantly exposed to non-diversified default risk yielded higher returns.…”

Section: Financial Distress Risk and Stock Returnmentioning

confidence: 99%

Predicting Financial Distress in Malaysia and Its Effect on Stock Returns

Hanafi

Md-Rus

Mohd

2021

International Journal of Banking and Finance

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Unstable economic conditions have an adverse impact on the financial performance of firms, leading to financial distress, which is an unfavourable situation for investors as it may affect their investment returns. Thus, this study attempted to predict financial distress and to examine the effect of financial distress on stock returns by using firms listed on Bursa Malaysia from 1990 to 2020. This study used the logit model to find the probability of bankruptcy and also as a proxy for financial distress risk in the asset pricing model. From this study, financial distress risk was found to be insignificant in pricing stock returns in all tested models. This finding demonstrates that financial distress risk does not affect stock returns since this risk may be eliminated through diversification.

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“…The pandemic acted as an environmental risk, severely impacting, and disrupting economic activities all over the world. In this regard, Chhapra, et al [17] defined systematic risk as "distress risk". The impact on the global economy is still in the process of recovery, as evidenced by persistently volatile global economic indicators and markets, high inflation rates, fluctuating commodity prices, declining GDP, and exchange rates.…”

Section: Introductionmentioning

confidence: 99%

Management of risk of corporate distress and failure before, during and after the COVID-19 pandemic via corporate governance performance

Benson

Ganda

2023

ijirss

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The impact of the recent pandemic on aspects of corporate governance, business, a country's economy, corporate distress, failures, and the general well-being of companies has been a subject of robust discussion. This study was conducted to examine the influence of corporate governance in mediating and managing the risk of corporate distresses and failures before, during, and after the COVID-19 pandemic. The study employed the Panel Autoregressive Distributed Lag (PARDL) model on annual data from 2010 to 2021 to analyze the short-run and long-run effects of the pandemic on corporate governance and sustainability performance. The results from both the short-run and long-run effects are similar, revealing that the estimated coefficient of the debt-to-equity ratio, finance costs, and COVID-19 related costs are negative but significant in the models. Conversely, the coefficients of the current ratio, quick ratio, and board size from both short-run and long-run effects show positive and significant results. Generally, the findings reveal that the coefficient of board size, as a proxy for corporate governance, has a very strong influence in mediating the risk of corporate distress and failure before, during, and after the pandemic period, up to a certain level until the pandemic’s impact was severe on companies’ production, sales, and other operational performance. Based on the above findings, it is recommended that the board of directors and other management boards employ enhanced good governance strategies and improve risk control mechanisms that enhance company performance during the pandemic to help avert corporate distresses and failure rates thereafter.

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Is Bankruptcy Risk a Systematic Risk? Evidence from Pakistan Stock Exchange

Cited by 5 publications

References 32 publications

Viability of Risk-return Trade-off within a South African Context

Viability of Risk-return Trade-off within a South African Context

Predicting Financial Distress in Malaysia and Its Effect on Stock Returns

Management of risk of corporate distress and failure before, during and after the COVID-19 pandemic via corporate governance performance

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