Which type of firm is more likely to experience a loss of customers in the event of financial distress:
a. Campbell Soup Company or Intuit, Inc. (s maker of accounting software)?
b. Allstate corporation (an insurance company) or Reebok International (a footwear and clothing firm)?
Firms with a greater risk of experiencing financial distress will borrow less than firms with a lower risk of financial distress. For example, all other things being equal, the greater the volatility in EBIT, the less a firm should borrow.
The costs of financial distress depend primarily on the firms' assets. In particular, financial distress costs will be determined by how easily ownership of ...
This solution discusses loss of customers and financial distress.