Market Responses to Financial Distress: A Comparative Study of the U.S. and Chinese Markets
Author (s)
Mohamed Salah Elzalabany
Abstract
The performance of financially distressed firms has become a primary concern for investors, who prioritize market stability and seek to mitigate investment risks. Consequently, the ability to predict stock failures and assess financial distress is crucial for informed decision-making. This study examines the impact of financial distress on stock returns while accounting for key control variables, including firm size, the book-to-market equity (BE/ME) ratio, and overall market return. To evaluate corporate financial distress and its influence on stock performance, this research employs the Altman Z-score model within two of the world’s largest economies: the United States and China. The analysis is based on two distinct samples covering multiple sectors from 2013 to 2022. The empirical methodology is structured in two stages. First, the Altman Z-score model is applied to assess financial distress and compare trends across the two markets. Second, a panel data regression model is utilized to examine the extent to which financial distress influences variations in stock returns. The findings indicate a positive and statistically significant relationship between the Z-score and stock returns in both markets, underscoring the predictive power of financial distress indicators in explaining stock return variations across different economic environments.
Keywords: Financial Distress, Stock Returns, Panel Data Regression, US Market, Chinese Market.
| Title: | Market Responses to Financial Distress: A Comparative Study of the U.S. and Chinese Markets |
|---|---|
| Author: | Mohamed Salah Elzalabany |
| Journal Name: | International Journal of Science and Business |
| Website: | ijsab.com |
| ISSN: | ISSN 2520-4750 (Online), ISSN 2521-3040 (Print) |
| DOI: | https://doi.org/10.58970/IJSB.2572 |
| Media: | Online |
| Volume: | 45 |
| Issue: | 1 |
| Issue publication (Year): | 2025 |
| Acceptance Date: | 18/03/2025 |
| Date of Publication: | 20/03/2025 |
| PDF URL: | http://ijsab.com/wp-content/uploads/2572.pdf |
| Free download: | Available |
| Page: | 14-29 |
| First Page: | 14 |
| Last Page: | 29 |
| Paper Type: | Research paper |
| Current Status: | Published |
Cite This Article:
Elzalabany, M. S. (2025). Market Responses to Financial Distress: A Comparative Study of the U.S. and Chinese Markets, International Journal of Science and Business, 45(1), 14-29. https://doi.org/10.58970/IJSB.2572
Retrieved from http://ijsab.com/wp-content/uploads/2572.pdf
About Author (s)
Mohamed Salah Elzalabany, School of Banking and Finance, University of International Business and Economics, Beijing, China. ORCID: https://orcid.org/0009-0003-6867-4976
DOI: https://doi.org/10.58970/IJSB.2572