Internet Appendix to “Financial Distress and the Cross-section of Equity Returns”

This Internet Appendix provides additional proofs and results that are left out of the main text of the paper due to space limitation. Section I of this appendix collects proofs of the corollaries to Proposition 1 in the main text. Section II presents a general dynamic model of investment and capital structure decisions that allows for shareholder recovery in default. Section III describes the numerical procedure used to solve the general model and reports numerical results on expected returns, value spreads and momentum profits that complement those obtained from the simple model in the paper. Section IV contains additional empirical results mentioned in the main text. ∗Garlappi is at the Sauder School of Business, University of British Columbia. Yan is at the Moore School of Business, University of South Carolina and Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University. Citation format: Garlappi, Lorenzo, and Hong Yan, 2011, Internet Appendix to “Financial Distress and the Cross-section of Equity Returns,” Journal of Finance, Vol. 66, 3, 789–822, http://www.afajof.org/supplements.asp. Please note: Wiley-Blackwell is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing material) should be directed to the authors of the article.