Table 4 Earnings-returns association for...

Table 4

Earnings-returns association for bankrupt and non-bankrupt firms using matching (1987–2014)

$X_{i t} / M V_{i t - 1} = β_{0} + β_{1} D_{i t} + β_{2} R_{i t} + β_{3} D_{i t} * R_{i t} + \sum Ψ_{t} Y e a r + ε_{i t}$
Variables	Full sample	Non-bankrupt	Bankrupt
D (β₁)	−0.0303* (−1.88)	−0.00319 (−0.30)	−0.0283 (−0.87)
R (β₂)	0.0172 (0.87)	0.0381*** (2.80)	0.0116 (0.31)
DR (β₃)	0.228*** (5.37)	0.0859*** (2.66)	0.128* (1.84)
Constant	0.121*** (3.92)	0.0260 (0.62)	0.116*** (3.55)
Year fixed effects	Yes	Yes	Yes
Observations	1,152	576	576
R²	0.135	0.170	0.094

$X_{i t} / M V_{i t - 1} = β_{0} + β_{1} D_{i t} + β_{2} R_{i t} + β_{3} D_{i t} * R_{i t} + \sum Ψ_{t} Y e a r + ε_{i t}$
Variables	Full sample	Non-bankrupt	Bankrupt
D (β₁)	−0.0303* (−1.88)	−0.00319 (−0.30)	−0.0283 (−0.87)
R (β₂)	0.0172 (0.87)	0.0381*** (2.80)	0.0116 (0.31)
DR (β₃)	0.228*** (5.37)	0.0859*** (2.66)	0.128* (1.84)
Constant	0.121*** (3.92)	0.0260 (0.62)	0.116*** (3.55)
Year fixed effects	Yes	Yes	Yes
Observations	1,152	576	576
R²	0.135	0.170	0.094

Note(s): OLS regression with year fixed effects. The t-statistics in parentheses are robust and adjusted for firm clustering. X_it/M _it−1is net income before extraordinary items (Compustat #18), scaled by lagged market value of equity (Compustat #125 * Compustat #199). R it is the annual stock return from nine months before fiscal year-end of three months after fiscal year-end from CRSP. D_it = 1 if R_it < 0, and zero otherwise. ***p < 0.01, **p < 0.05, *p < 0.1. Year is a dummy variable for the fiscal year

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