Mind the tail, or risk to fail

Jairaj Gupta, Sajid Chaudhry

Research output: Contribution to journalArticlepeer-review


In this study we hypothesise that more frequent extreme negative daily equity returns result in higher tail risk, and this subsequently increases firms’ likelihood of entering financial distress. Specifically, we investigate the role of Value-at-risk and Expected Shortfall in aggravating firms’ likelihood of experiencing financial distress. Our results show that longer horizon (three- and five-year) tail risk measures contributes positively toward firms’ likelihood of experiencing financial distress. Additionally, considering the declining number of bankruptcy filings, and increasing out-of-court negotiations and debt reorganisations, we argue in favour of penalising firms for becoming sufficiently close to bankruptcy that they have questionable going-concern status. Thus, we propose a definition of financial distress contingent upon firms’ earnings, financial expenses, market value and operating cash flow.
Original languageEnglish
Pages (from-to)167-185
Number of pages19
JournalJournal of Business Research
Early online date27 Feb 2019
Publication statusPublished - 1 Jun 2019

Bibliographical note

© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/


  • Bankruptcy
  • Downside risk
  • Expected shortfall
  • Financial distress
  • Tail risk
  • Value-at-risk


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