Document Type

Article

Publication Date

4-2001

Abstract

The purpose of this paper is to investigate whether initial technical debt covenant violations are associated with significant increases in the equity risk of violating firms. Our results indicate that first-time violations are associated with significant increases in both systematic and unsystematic risk. The increase in systematic risk is attributable primarily to rising levels of financial leverage as opposed to changes in the underlying asset beta. We also find that the change in unsystematic risk experienced by first-time debt covenant violators is a significant predictor of future exchange delisting, even after controlling for other factors typically associated with increasing financial distress.

Document Object Identifier (DOI)

10.1111/1468-5957.00381

Publication Information

Journal of Business Finance & Accounting

Included in

Business Commons

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