The relationship between book-to-market ratio of equity and distress risk for stocks quoted at the NSE
Abstract
This paper examines the relationship between book-to-market ratio of equity, distress risk and
stock returns.
The distress risk is proxied by Ohlson's score (O-score), a measure devised by Ohlson (1980)
to find the probability of a stock being delisted in stock exchange.
The book-to-market ratio of equity and distress risk as proxied by O-score are also compared
with other variables thought to be related to distress including leverage, return on assets and
SIze.
Stocks are ranked every year on the basis of the probability of distress and book-to-market
ratio of equity with the spearman's rank correlation co-efficient being calculated between the
ranks.
The results show that book-to-market ratio of equity and distress risk are both negatively
related to variables thought to be associated with distress i.e. return on assets, market leverage
and size as measured by market capitalization of equity.
Moreover, the sorts reveal that both distress.risk and the book-to-market ratio of equity are
positively related to returns though not very strongly.
Citation
Masters Of Business Administration (MBA) Degree, University of NairobiPublisher
University of Nairobi School of Business
Description
A management research project submitted in
fulfillment of the requirements of the Degree of
Master of Business Administration, (MBA), School Of
Business, University Of Nairobi