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A Study on Firms with Negative Book Value of Equity

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  • Haowen Luo
  • Ian Liu
  • Niranjan Tripathy

Abstract

This paper studies the puzzling negative book equity phenomenon among US public firms. Our evidence suggests that negative book equity firms exhibit heterogeneous characteristics. We show that a great portion of these firms, while operating at excessive capital structure with leverage ratio over 100%, are financially and operationally healthy. These healthy negative book equity firms increase their debt primarily motived by a need for funds to fulfill investment demand. We also find that the off‐balance sheet intangible assets and quality of intangible assets play an important role in determining the true debt capacity of these firms.

Suggested Citation

  • Haowen Luo & Ian Liu & Niranjan Tripathy, 2021. "A Study on Firms with Negative Book Value of Equity," International Review of Finance, International Review of Finance Ltd., vol. 21(1), pages 145-182, March.
    • Handle: RePEc:bla:irvfin:v:21:y:2021:i:1:p:145-182
    DOI: 10.1111/irfi.12260
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    1. Doron Reichmann & Rouven Möller & Tobias Hertel, 2022. "Nothing but good intentions: the search for equity and stock price crash risk," Journal of Business Economics, Springer, vol. 92(9), pages 1455-1489, November.
    2. Beckmeyer, Heiner & Wiedemann, Timo, 2022. "Recovering Missing Firm Characteristics with Attention-Based Machine Learning," VfS Annual Conference 2022 (Basel): Big Data in Economics 264135, Verein für Socialpolitik / German Economic Association.

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