Corporate Financial Distress and Stock Return:Evidence from Indian Stock Market

Abstract

In the recent years, studies in the corporate failure or its prediction have been very prevalent among the academicians, financial practitioners, and watchful economic bodies. Although there are enough evidences or tools to forecast this trend, an accurate and a reliable method for predicting failure is under study. One of the most common business phenomena is also one of the most perplexing: when successful companies face big changes in their environment, they often fail to respond effectively. The present study tries to examine whether the capital market reacts differently according to the outcomes of financial distress for default and willful default companies at the time firms announce their distress condition, which is a matter of concern to both academics and business professionals. Abnormal returns, AARs and CAARs were computed. Event study methodology was also adopted to examine the trend during pre and post windows.