The Cost of Financial Distress

The cost of financial distress derived from liquidation or debt reorganization has important influence to the value of company and the decision of capital structure.It can be divided into three aspects: costs borne by the distressed company, losses borne by claimers and the losses borne by other parties exclude the company and claimers.On the other side, financial distress might bring some benefits to firms,such as management improvement within company and fortune transfer to outside companies.