000050146 001__ 50146 000050146 005__ 20210803101637.0 000050146 0247_ $$2doi$$a10.22004/ag.econ.50146 000050146 037__ $$a1076-2016-87135 000050146 037__ $$a1076-2016-87260 000050146 041__ $$aeng 000050146 084__ $$aG30 000050146 084__ $$aG33 000050146 245__ $$aUnderstanding Differences Between Financial Distress and Bankruptcy 000050146 260__ $$c2006 000050146 269__ $$a2006 000050146 270__ $$mh.platt@neu.edu$$pPlatt, Harlan D. 000050146 300__ $$a17 000050146 336__ $$aJournal Article 000050146 520__ $$aFor the most part, research purporting to address the issue of financial distress has actually studied samples of bankrupt companies. Financial distress and bankruptcy are different. In contrast, this paper starts with a sample of companies that are financially distressed but not yet bankrupt. The sample was obtained by screening the Compustat industry database with a three-tiered identification system. The screen bifurcated companies into financially and non-financially distressed groups. A multi-tiered screen reduces the incidence of mistakenly identifying a non-distressed company as financially distressed. The paper then compares factors indicating the likelihood of future bankruptcies to those indicating future financial distress. To do this, an early warning financial-distress model was developed and compared to a methodologically similar existent model of bankruptcy. The final financial distress model included only one variable present in the bankruptcy model and four new variables. The limited overlap of explanatory factors between the models questions the similarity of financial distress and bankruptcy. Statistical tests lend support to the notion that the bankruptcy process is not just a continuation of a downward spiraling cycle of financial distress. Our hypothesis is that financial distress is something that happens to companies as a consequence of operating decisions or external forces while bankruptcy is something that companies choose to do to protect their assets from creditors. 000050146 650__ $$aFinancial Economics 000050146 6531_ $$afinancial distress 000050146 6531_ $$aearly warning model 000050146 6531_ $$arenewal 000050146 700__ $$aPlatt, Harlan D. 000050146 700__ $$aPlatt, Marjorie B. 000050146 773__ $$q141$$o157$$tReview of Applied Economics$$j02$$k2$$d2006 000050146 8564_ $$9b1fc8d1c-70cb-43f9-bc31-30c168ebe532$$s150901$$uhttps://ageconsearch.umn.edu/record/50146/files/1-Harlan%20D%20Platt.pdf 000050146 887__ $$ahttp://purl.umn.edu/50146 000050146 909CO $$ooai:ageconsearch.umn.edu:50146$$pGLOBAL_SET 000050146 912__ $$nSubmitted by Amber Besch (besch014@umn.edu) on 2009-05-20T13:14:11Z No. of bitstreams: 1 1-Harlan D Platt.pdf: 150901 bytes, checksum: 49e61c8a1a977300f71b21247b9d44c0 (MD5) 000050146 912__ $$nMade available in DSpace on 2009-05-20T13:14:12Z (GMT). No. of bitstreams: 1 1-Harlan D Platt.pdf: 150901 bytes, checksum: 49e61c8a1a977300f71b21247b9d44c0 (MD5) Previous issue date: 2006 000050146 913__ $$aLicense granted by Amber Besch (besch014@umn.edu) on 2009-05-20T13:06:15Z (GMT): <center> <h2> Deposit Agreement </h2> </center> I represent that I am the creator of the digital material identified herein (&ldquo;Work&rdquo;). I represent that the work is original and that I either own all rights of copyright or have the right to deposit the copy in a digital archive such as AgEcon Search. I represent that in regard to any non-original material included in the Work I have secured written permission of the copyright owner (s) for this use or believe this use is allowed by law. I further represent that I have included all appropriate credits and attributions. I hereby grant the Regents of the University of Minnesota (&ldquo;University&rdquo;), through AgEcon Search, a non-exclusive right to access, reproduce, and distribute the Work, in whole or in part, for the purposes of security, preservation, and perpetual access. I grant the University a limited, non-exclusive right to make derivative works for the purpose of migrating the Work to other media or formats in order to preserve access to the Work. I do not transfer or intend to transfer any right of copyright or other intellectual property to the University. If the Deposit Agreement is executed by the Author�s Representative, the Representative shall separately execute the following representation: I represent that I am authorized by the Author to execute this Deposit Agreement on behalf of the Author. 000050146 980__ $$a1076 000050146 982__ $$gReview of Applied Economics>Volume 2, Number 2, 2006