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 ( if a company went bankrupt,
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.
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![]() |
-0 | . | 493 | 1 | . | 157 | 0 | . | 072 | 0 | . | 002 |
NI![]() |
-0 | . | 599 | 0 | . | 186 | -0 | . | 003 | 0 | . | 110 |
EBIT![]() |
-2 | . | 464 | 36 | . | 186 | 0 | . | 435 | 3 | . | 978 |
EBIT![]() |
-16 | . | 897 | 486 | . | 945 | 15 | . | 094 | 68 | . | 968 |
TD![]() |
0 | . | 000 | 1 | . | 123 | 0 | . | 338 | 0 | . | 236 |
TL![]() |
0 | . | 270 | 1 | . | 463 | 0 | . | 706 | 0 | . | 214 |
SIZE | 12 | . | 813 | 18 | . | 327 | 15 | . | 070 | 1 | . | 257 |
QA![]() |
-4 | . | 003 | 259 | . | 814 | 4 | . | 209 | 28 | . | 433 |
CASH![]() |
0 | . | 000 | 0 | . | 203 | 0 | . | 034 | 0 | . | 041 |
WC![]() |
-0 | . | 258 | 0 | . | 540 | 0 | . | 093 | 0 | . | 132 |
CA![]() |
0 | . | 041 | 2001 | . | 963 | 25 | . | 729 | 219 | . | 568 |
STD![]() |
0 | . | 000 | 0 | . | 874 | 0 | . | 082 | 0 | . | 129 |
S![]() |
0 | . | 002 | 5 | . | 559 | 1 | . | 008 | 0 | . | 914 |
INV![]() |
0 | . | 000 | 252 | . | 687 | 3 | . | 253 | 27 | . | 555 |