10.4 Description of Data

For our study we selected the largest bankrupt companies with the capitalization of no less than $1 billion that filed for protection against creditors under Chapter 11 of the US Bankruptcy Code in 2001-2002 after the stock marked crash of 2000. We excluded a few companies due to incomplete data, leaving us with 42 companies. They were matched with 42 surviving companies with the closest capitalizations and the same US industry classification codes available through the Division of Corporate Finance of the Securities and Exchange Commission (SEC; 2004).

From the selected 84 companies 28 belonged to various manufacturing industries, 20 to telecom and IT industries, 8 to energy industries, 4 to retail industries, 6 to air transportation industries, 6 to miscellaneous service industries, 6 to food production and processing industries and 6 to construction and construction material industries. For each company the following information was collected from the annual reports for 1998-1999, i.e. 3 years prior to defaults of bankrupt companies (SEC; 2004): (i) S - sales; (ii) COGS - cost of goods sold; (iii) EBIT - earnings before interest and taxes, in most cases equal to the operating income; (iv) Int - interest payments; (v) NI - net income (loss); (vi) Cash - cash and cash equivalents; (vii) Inv - inventories; (viii) CA - current assets; (ix) TA - total assets; (x) CL - current liabilities; (xi) STD - current maturities of the long-term debt; (xii) TD - total debt; (xiii) TL - total liabilities; (xiv) Bankr - bankruptcy ($ 1$ if a company went bankrupt, $ -1$ otherwise).

The information about the industry was summarized in the following dummy variables: (i) Indprod - manufacturing industries; (ii) Indtelc - telecom and IT industries; (iii) Indenerg - energy industries; (iv) Indret - retail industries; (v) Indair - air transportation industries; (vi) Indserv - miscellaneous service industries; (vii) Indfood - food production and processing industries; (viii) Indconst - construction and construction material industries.

Based on these financial indicators the following four groups of financial ratios were constructed and used in our study: (i) profit measures: EBIT/TA, NI/TA, EBIT/S; (ii) leverage ratios: EBIT/Int, TD/TA, TL/TA; (iii) liquidity ratios: QA/CL, Cash/TA, WC/TA, CA/CL and STD/TD, where QA is quick assets and WC is working capital; (iv) activity or turnover ratios: S/TA, Inv/COGS.


Table: Descriptive statistics for the companies. All data except $ {\rm SIZE}=\log {\rm (TA)}$ and ratios are given in billions of dollars.
Variable Min Max .Mean .Std. Dev. . 
TA 0 .367 91 .072 8 .122 13 .602
CA 0 .051 10 .324 1 .657 1 .887
CL 0 .000 17 .209 1 .599 2 .562
TL 0 .115 36 .437 4 .880 6 .537
CASH 0 .000 1 .714 0 .192 0 .333
INVENT 0 .000 7 .101 0 .533 1 .114
LTD 0 .000 13 .128 1 .826 2 .516
STD 0 .000 5 .015 0 .198 0 .641
SALES 0 .036 37 .120 5 .016 7 .141
COGS 0 .028 26 .381 3 .486 4 .771
EBIT -2 .214 29 .128 0 .822 3 .346
INT -0 .137 0 .966 0 .144 0 .185
NI -2 .022 4 .013 0 .161 0 .628
EBIT$ /$TA -0 .493 1 .157 0 .072 0 .002
NI$ /$TA -0 .599 0 .186 -0 .003 0 .110
EBIT$ /$S -2 .464 36 .186 0 .435 3 .978
EBIT$ /$INT -16 .897 486 .945 15 .094 68 .968
TD$ /$TA 0 .000 1 .123 0 .338 0 .236
TL$ /$TA 0 .270 1 .463 0 .706 0 .214
SIZE 12 .813 18 .327 15 .070 1 .257
QA$ /$CL -4 .003 259 .814 4 .209 28 .433
CASH$ /$TA 0 .000 0 .203 0 .034 0 .041
WC$ /$TA -0 .258 0 .540 0 .093 0 .132
CA$ /$CL 0 .041 2001 .963 25 .729 219 .568
STD$ /$TD 0 .000 0 .874 0 .082 0 .129
S$ /$TA 0 .002 5 .559 1 .008 0 .914
INV$ /$COGS 0 .000 252 .687 3 .253 27 .555