Description:
Bankruptcy and delisting due to other failures are two closely related yet sharplydifferent distress events. Using a state-of-the-art adaptive Lasso variable selectionmethod, we identify two different models for bankruptcy risk and other-failure risk.Both selected models gain better out-of-sample prediction performances than standardmodels in the literature. We further investigate the asset-pricing implications anddocument a persistently positive risk premium associated with bankruptcy risk, whereasthe firms with high other-failure risk do not earn significant abnormal returns. Inaddition, high bankruptcy-risk firms and high other-failure risk firms differ significantlyin their institutional ownership, analyst coverage, and corporate news releases