https://mpra.ub.uni-muenchen.de/id/eprint/13377 2019-09-26T19:25:32Z info:eu-repo/semantics/descriptiveMetadata https://mpra.ub.uni-muenchen.de/13377/ The Undervaluation of Distressed Company's Equity Schmidt, Frederik G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill G33 - Bankruptcy ; Liquidation In a simple firm value model we consider the impact of the insolvency probability on the valuation of equity and debt, which are assumed to be not publicly traded. For the case of a distressed company, which usually has high debt and low equity, we can show that the impact becomes increasingly important. Disregarding this yields an overvaluation of debt and an undervaluation of equity. We calculate the sensitivity of equity with regard to debt, which is isomorphic to the sensitivity of a call option with regard to the strike price, and show that this sensitivity rises with increasing debt. Furthermore, we provide a numerical example of this effect. 2009-02-09 MPRA Paper NonPeerReviewed application/pdf en https://mpra.ub.uni-muenchen.de/13377/1/MPRA_paper_13377.pdf Schmidt, Frederik (2009): The Undervaluation of Distressed Company's Equity. en info:eu-repo/semantics/objectFile info:eu-repo/semantics/humanStartPage