Electrochemical battery

Electrochemical battery HISTORY An early form of electrochemical battery called the Baghdad Battery may have been used in antiquity. However, the modern development of batteries started with the Voltaic pile, invented by the Italian physicist Alessandro Volta in 1800. In 1780 the Italian anatomist and physiologist Luigi Galvani noticed that dissected frogs legs would twitch when struck by a spark from a Leyden jar, an external source of electricity. In 1786 he noticed that twitching would occur during lightning storms. After many years Galvani learned how to produce twitching without using any external source of electricity. He started doing his experiments on frogs with metals but he replaced them with electrolyte and electrodes and named the system as voltaic cell. In 1800, Volta invented the battery by placing many voltaic cells in series, literally piling them one above the other. This Voltaic pile gave a greatly enhanced net emf for the combination. After voltaic cell, in 1836 Daniell cell came into existence. It provided more stable current and was also accepted by the industries. These wet cells were not portable as there liquid electrolyte used to spill. Therefore by the end of nineteenth century dry batteries came into existence in which the liquid electrolyte was replaced with dry paste making the dry batteries portable. Working of Batteries Electrochemical cell In this example the two half-cells are linked by a salt bridge separator that permits the transfer of ions, but not water molecules. A battery is a device that converts chemical energy directly to electrical energy. It consists of a number of voltaic cells; each voltaic cell consists of two half cells connected in series by a conductive electrolyte containing anions and cations. One half-cell includes electrolyte and the electrode to which anions (negatively-charged ions) migrate, i.e. the anode or negative electrode; the other half-cell includes electrolyte and the electrode to which cations (positively-charged ions) migrate, i.e. the cathode or positive electrode. In the redox reaction that powers the battery, reduction (addition of electrons) occurs to cations at the cathode, while oxidation (removal of electrons) occurs to anions at the anode. The electrodes do not touch each other but are electrically connected by the electrolyte, which can be either solid or liquid. Many cells use two half-cells with different electrolytes. In that case each half-cell is enclosed in a container, and a separator that is porou s to ions but not the bulk of the electrolytes prevents mixing. Each half cell has an electromotive force (or emf), determined by its ability to drive electric current from the interior to the exterior of the cell. The net emf of the cell is the difference between the emfs of its half-cells, as first recognized by Volta. Therefore, if the electrodes have emfs and, then the net emf is; in other words, the net emf is the difference between the reduction potentials of the half-reactions. The electrical driving force or across the terminals of a cell is known as the terminal voltage (difference) and is measured in volts. The terminal voltage of a cell that is neither charging nor discharging is called the open-circuit voltage and equals the emf of the cell. Because of internal resistance, the terminal voltage of a cell that is discharging is smaller in magnitude than the open-circuit voltage and the terminal voltage of a cell that is charging exceeds the open-circuit voltage. An ideal cell has negligible internal resistance, so it would maintain a constant terminal voltage of until exhausted, then dropping to zero. If such a cell maintained 1.5 volts and stored a charge of one Coulomb then on complete discharge it would perform 1.5 Joule of work. In actual cells, the internal resistance increases under discharge, and the open circuit voltage also decreases under discharge. If the voltage and resistance are plotted against time, the resulting graphs typically are a cur ve; the shape of the curve varies according to the chemistry and internal arrangement employed. As stated above, the voltage developed across a cells terminals depends on the energy release of the chemical reactions of its electrodes and electrolyte. Alkaline and carbon-zinc cells have different chemistries but approximately the same emf of 1.5 volts; likewise NiCd and NiMH cells have different chemistries, but approximately the same emf of 1.2 volts. On the other hand the high electrochemical potential changes in the reactions of lithium compounds give lithium cells emfs of 3 volts or more. Categories and types of batteries Main article: List of battery types Batteries are classified into two broad categories, each type with advantages and disadvantages. Primary batteries irreversibly (within limits of practicality) transform chemical energy to electrical energy. When the initial supply of reactants is exhausted, energy cannot be readily restored to the battery by electrical means. Secondary batteries can be recharged; that is, they can have their chemical reactions reversed by supplying electrical energy to the cell, restoring their original composition. Historically, some types of primary batteries used, for example, for telegraph circuits, were restored to operation by replacing the components of the battery consumed by the chemical reaction.[34] Secondary batteries are not indefinitely rechargeable due to dissipation of the active materials, loss of electrolyte and internal corrosion. Primary batteries Primary batteries can produce current immediately on assembly. Disposable batteries are intended to be used once and discarded. These are most commonly used in portable devices that have low current drain, are only used intermittently, or are used well away from an alternative power source, such as in alarm and communication circuits where other electric power is only intermittently available. Disposable primary cells cannot be reliably recharged, since the chemical reactions are not easily reversible and active materials may not return to their original forms. Battery manufacturers recommend against attempting to recharge primary cells. Common types of disposable batteries include zinc-carbon batteries and alkaline batteries. Generally, these have higher energy densities than rechargeable batteries, but disposable batteries do not fare well under high-drain applications with loads under 75 ohms (75 ÃŽ ©). Secondary batteries Main article: Rechargeable battery Secondary batteries must be charged before use; they are usually assembled with active materials in the discharged state. Rechargeable batteries or secondary cells can be recharged by applying electrical current, which reverses the chemical reactions that occur during its use. Devices to supply the appropriate current are called chargers or rechargers. The oldest form of rechargeable battery is the lead-acid battery. This battery is notable in that it contains a liquid in an unsealed container, requiring that the battery be kept upright and the area be well ventilated to ensure safe dispersal of the hydrogen gas produced by these batteries during overcharging. The lead-acid battery is also very heavy for the amount of electrical energy it can supply. Despite this, its low manufacturing cost and its high surge current levels make its use common where a large capacity (over approximately 10Ah) is required or where the weight and ease of handling are not concerns. A common form of the lead-acid battery is the modern car battery, which can generally deliver a peak current of 450 amperes. An improved type of liquid electrolyte battery is the sealed valve regulated lead acid (VRLA) battery, popular in the automotive industry as a replacement for the lead-acid wet cell. The VRLA battery uses an immobilized sulfuric acid electrolyte, reducing the chance of leakage and extending shelf life. VRLA batteries have the electrolyte immobilized, usually by one of two means: Gel batteries (or gel cell) contain a semi-solid electrolyte to prevent spillage. Absorbed Glass Mat (AGM) batteries absorb the electrolyte in a special fiberglass matting Other portable rechargeable batteries include several dry cell types, which are sealed units and are therefore useful in appliances such as mobile phones and laptop computers. Cells of this type (in order of increasing power density and cost) include nickel-cadmium (NiCd), nickel metal hydride (NiMH) and lithium-ion (Li-ion) cells. By far, Li-ion has the highest share of the dry cell rechargeable market. Meanwhile, NiMH has replaced NiCd in most applications due to its higher capacity, but NiCd remains in use in power tools, two-way radios, and medical equipment. Battery cell types There are many general types of electrochemical cells, according to chemical processes applied and design chosen. The variation includes galvanic cells, electrolytic cells, fuel cells, flow cells and voltaic piles. Wet cell A wet cell battery has a liquid electrolyte. Other names are flooded cell since the liquid covers all internal parts, or vented cell since gases produced during operation can escape to the air. Wet cells were a precursor to dry cells and are commonly used as a learning tool for electrochemistry. It is often built with common laboratory supplies, like beakers, for demonstrations of how electrochemical cells work. A particular type of wet cell known as a concentration cell is important in understanding corrosion. Wet cells may be primary cells (non-rechargeable) or secondary cells (rechargeable). Originally all practical primary batteries such as the Daniel cell were built as open-topped glass jar wet cells. Other primary wet cells are the Leclanche cell, Grove cell, Bunsen cell, Chromic acid cell, Clark cell and Weston cell. The Leclanche cell chemistry was adapted to the first dry cells. Wet cells are still used in automobile batteries and in industry for standby power for switchgear, telecommunication or large uninterruptible power supplys, but in many places batteries with gel cells have been used instead. These applications commonly use lead-acid or nickel-cadmium cells. Dry cell A dry cell has the electrolyte immobilized as a paste, with only enough moisture in the paste to allow current to flow. Compared to a wet cell, the battery can be operated in any random position, and will not spill its electrolyte if inverted. While a dry cells electrolyte is not truly completely free of moisture and must contain some moisture to function, when it was first developed it had the advantage of containing no sloshing liquid that might leak or drip out when inverted or handled roughly, making it highly suitable for small portable electric devices. By comparison, the first wet cells were typically fragile glass containers with lead rods hanging from the open top, and needed careful handling to avoid spillage. An inverted wet cell would leak, while a dry cell would not. Lead-acid batteries would not achieve the safety and portability of the dry cell, until the development of the gel battery. A common dry cell battery is the zinc-carbon battery, using a cell sometimes called the dry Leclanchà © cell, with a nominal voltage of 1.5 volts, the same nominal voltage as the alkaline battery (since both use the same zinc-manganese dioxide combination. The makeup of a standard dry cell is a zinc anode (negative pole), usually in the form of a cylindrical pot, with a carbon cathode (positive pole) in the form of a central rod. The electrolyte is ammonium chloride in the form of a paste next to the zinc anode. The remaining space between the electrolyte and carbon cathode is taken up by a second paste consisting of ammonium chloride and manganese dioxide, the latter acting as a depolarizer. In some more modern types of so called high power batteries, the ammonium chloride has been replaced by zinc chloride. Battery cell performance A batterys characteristics may vary over load cycle, charge cycle and over life time due to many factors including internal chemistry, current drain and temperature. Extending battery life Battery life can be extended by storing the batteries at a low temperature, as in a refrigerator or freezer, because the chemical reactions in the batteries are slower. Such storage can extend the life of alkaline batteries by ~5%; while the charge of rechargeable batteries can be extended from a few days up to several months. In order to reach their maximum voltage, batteries must be returned to room temperature; discharging an alkaline battery at 250 mAh at 0 °C is only half as efficient as it is at 20 °C. As a result, alkaline battery manufacturers like Duracell do not recommend refrigerating or freezing batteries. Hazards 1.) Explosion A battery explosion is caused by the misuse or malfunction of a battery, such as attempting to recharge a primary (non-rechargeable) battery, or short circuiting a battery. With car batteries, explosions are most likely to occur when a short circuit generates very large currents. In addition, car batteries liberate hydrogen when they are overcharged (because of electrolysis of the water in the electrolyte). Normally the amount of overcharging is very small, as is the amount of explosive gas developed, and the gas dissipates quickly. However, when jumping a car battery, the high current can cause the rapid release of large volumes of hydrogen, which can be ignited by a nearby spark. When a battery is recharged at an excessive rate, an explosive gas mixture of hydrogen and oxygen may be produced faster than it can escape from within the walls of the battery, leading to pressure build-up and the possibility of the battery case bursting. In extreme cases, the battery acid may spray violently from the casing of the battery and cause injury. Overcharging—that is, attempting to charge a battery beyond its electrical capacity—can also lead to a battery explosion, leakage, or irreversible damage to the battery. It may also cause damage to the charger or device in which the overcharged battery is later used. Additionally, disposing of a battery in fire may cause an explosion as steam builds up within the sealed case of the battery. 2.) Leakage One style of disposable battery uses zinc can as both a reactant and as the container to hold the other reagents. If this kind of battery is run all the way down, or if it is recharged after running down too far, the reagents can emerge through the cardboard and plastic that forms the remainder of the container. The active chemicals can then corrode or otherwise destroy the equipment that they were inserted into. Many battery chemicals are corrosive or poisonous or both. If leakage occurs, either spontaneously or through accident, the chemicals released may be dangerous. 3.) Environmental concerns The widespread use of batteries has created many environmental concerns, such as toxic metal pollution. Battery manufacture consumes resources and often involves hazardous chemicals. Used batteries also contribute to electronic waste. Some areas now have battery recycling services available to recover some of the materials from used batteries. Batteries may be harmful or fatal if swallowed. Recycling or proper disposal prevents dangerous elements (such as lead, mercury, and cadmium) found in some types of batteries from entering the environment. In the United States, Americans purchase nearly three billion batteries annually, and about 179,000 tons of those end up in landfills across the country. In the United States, the Mercury-Containing and Rechargeable Battery Management Act of 1996 banned the sale of mercury-containing batteries (except small button cell batteries), enacted uniform labeling requirements for rechargeable batteries, and required that rechargeable batteries be easily removable. California and New York City prohibit the disposal of rechargeable batteries in solid waste, and along with Maine require recycling of cell phones. The rechargeable battery industry has nationwide recycling programs in the United States and Canada, with drop-off points at local retailers. Battery chemistry Older batteries were mostly based on rechargeable lead-acid or non-rechargeable alkaline chemistries, with nominal voltages in increments of 2.10 2.13 and 1.5Volts respectively, each representing one individual electrochemical cell. New special battery chemistries have strained older naming conventions. Rechargeable NiCd (Nickel Cadmium) and NiMH (Nickel Metal Hydride) typically output 1.25V per cell. Some devices may not operate properly with these cells, given the 16% reduction in voltage, but most modern ones handle them well. Conversely, lithium-ion rechargeable batteries output 3.7V per cell, 23% higher than a pair of alkaline cells (3V), which they are often designed to replace. Non-rechargeable lithium-chemistry batteries, which provide exceptionally high energy density, produce about 1.5V per cell and are thus similar to alkaline batteries. Many new battery sizes refer to both the batteries size and chemistry, while older names do not. For a more complete list see battery types. This summary is only for types relating to battery sizes. Homemade cells Almost any liquid or moist object that has enough ions to be electrically conductive can serve as the electrolyte for a cell. As a novelty or science demonstration, it is possible to insert two electrodes made of different metals into a lemon, potato, etc. and generate small amounts of electricity. Two-potato clocks are also widely available in hobby and toy stores; they consist of a pair of cells, each consisting of a potato (lemon, et cetera) with two electrodes inserted into it, wired in series to form a battery with enough voltage to power a digital clock. Homemade cells of this kind are of no real practical use, because they produce far less current—and cost far more per unit of energy generated—than commercial cells, due to the need for frequent replacement of the fruit or vegetable. In addition, one can make a voltaic pile from two coins and a piece of paper towel dipped in salt water. Such a pile would make very little voltage itself, but when many of them are s tacked together in series, they can replace normal batteries for a short amount of time. Sony has developed a biologically friendly battery that generates electricity from sugar in a way that is similar to the processes observed in living organisms. The battery generates electricity through the use of enzymes that break down carbohydrates, which are essentially sugar. Lead acid cells can easily be manufactured at home, but a tedious charge/discharge cycle is needed to form the plates. This is a process whereby lead sulfate forms on the plates, and during charge is converted to lead dioxide (positive plate) and pure lead (negative plate). Repeating this process results in a microscopically rough surface, with far greater surface area being exposed. This increases the current the cell can deliver. Daniell cells are also easy to make at home. Aluminum-air batteries can also be produced with high purity aluminum. Aluminum foil batteries will produce some electricity, but they are not very efficient, in part because a significant amount of hydrogen gas is produced.

Stereoptyping, Labeling, Pre-judging Essay -- Personal Narrative Racis

Stereoptyping, Labeling, Pre-judging One day as I was shopping in Patterson’s at the mall here in Bemidji I noticed somethin that I have seen quite a lot of as I have been living in this town of racial diversity. I seemed to notice when I walked in the store with my mom we got the expected "Hello, can I help you find something?". We said "No, we are just looking." and went on our way through the store. A couple of minutes later some Natives came in the store and the guy who was working acted much different. He kind of looked at them with a disgusted look and followed them about the store without really saying anything. If he did it was something like "What size are you looking for?", no hellos or any chance of using the word help. I watched how he kind of looked at them with a sick grin on his face resembling a smirk of disgust. My mom also saw this same thing happen a couple of days earlier but didn’t say anything until we left the store. I have never really liked this guy working there because I have seen him do this almost every time I am in the store and that type of thi...

Women In Business Essay

Unassuming nature (humility) M – Motivator I- Interpersonal skills S – Sense of purpose E – Empathic N – Notable – Innovative N – Novice S – Self-confidence Spokesman N – Never giving up E- Efficacious In the business world there are a lot of obstacles women have to face to climb the career ladder. Helen Keller once said, â€Å"Never bend your head. Always hold it high. Look the world right in the eye. † Women should take this message and run with it. It's not the people around us but ourselves which holds us back from what we want to accomplish.Self-confidence is the master key that unlocks the door in succeeding in today's business world. Confidence in one's self assists in elevating our position. Once a woman is confident, she has pride in her work and a little hard work comes easy. Singer Marsha Evans once remarked, â€Å"You can have unbelievable intelligence, you can have connections, you can have opportunities fal l out of the sky. But in the end hard work is the true, enduring characteristic of successful people. † Women, today we need not to be afraid of hard work. Working long hours and sacrificing our spare time is what it takes to build a business.Sometimes aging on an extra task can be beneficial to building the career we actually seek. We are classified as the ‘weaker vessels', but if we endure the hard work, it only makes us stronger and climbing the career ladder would be easy. As aforementioned in the acronym, the attribute listed for ‘B' in the word BUSINESS was bravery. Being a woman in a corporate world you would be timid by the male gender. You have to constantly push yourself out of your comfort zone to move forward. This means you have to take risks and accept when things go dismay. No matter the challenge or situation be brave.You will survive and turn things around. I am a young woman striving to succeed. Ambition is embedded. I don't settle for second best . â€Å"Reach for the stars†, but in reality I want to have it in the palm of my hands. My vision, dreams and aspirations will be a reality. The words of Anita Rowdier, â€Å"To succeed you have to believe in something with such a passion that it becomes a reality', and know I have passion within. For no matter what it is once I'm involved I will be passionate and committed. I stumbled upon a poem and the words of it really depicts who am and the attributes posses.Heart of a Woman in Business by Sherry Rough is an inspirational poem for women for all walks of life. A woman in business is like no other Multi-brilliant at work, and often too, a mother. Guided by vision to make a difference in this world, Reporting for service, with her hair even curled. Ready to go, whenever the need She knows in her heart, there's a calling to feed. To do right, to speak up, determined to succeed A role model that plants the possibility seed. Knows who she is, right down to the core Her essen ce, her passion-?shine all the more! She's in charge with a handle on it all.At the office, at home, or at the mall. Even in the depth of all she may know Realizes there's still plenty room to grow. So energetic, creative and fun . Early rise, there's much to be done! She still finds time to laugh and to play Sacred time too, to kneel and to pray It comes from inside, driven by vision, Get on board-?she's on a great mission! Her daily prayer resides in God's grace Serving others from her heart sets the pace Making use of her talent, wisdom and skill From strengths and trust in Divine will. Gentle, compassionate, loving and strongIn this sisterhood Of success you want to belong Anything she puts her heart to she can do SSH?s not alone assist-?as you can too! The road to get here has been quite a ride â€Å"Call me ‘Woman'-? it's my source of pride! † Come along, she's blazing' new trail A woman in business-?whom we all hail Studying at a prestigious institution as Hull I nternational Business School will broaden my horizon and the outlook for my life. It will allow me to build on the skills and traits that I already own and develop new ones that will take me on the road to success full speed.Women rarely hold highly influential leadership positions. I believe that women are just as capable of being successful leaders as men with the same abilities. If more women are allowed and encouraged to become leaders, it would create a wavelet effect throughout society. There is an imbalance in the business world between men and women leaders. It is very critical that women hold leadership position. Within the work environment there will be new perspectives and outlook on different situations. We have accepted the mental abilities that men and women are equal. Marie C.Wilson in Closing the Leadership Gap: Add Women Change Everything said, â€Å"When look at issues face, and when I think of the need, I am as convinced as I have ever been that our future depend s on the leadership of women – not to replace men but to transform our options alongside them. † These words that came forth is truly a divine statement. Women holding leadership positions isn't undermining men in influential positions but wanting to work hand in hand with them. You receive views from each person and ideas can be formulated and bought forth. It shouldn't be about male vs.. Male but about how we can all benefit.Right now too much power is placed within the grasp of men and the masculine perspective. A survey from Right Management Consultants shows that the skill that companies most often seek in managers is the ability to motivate and engage others. These characteristics are displayed more from women. Ultimately, if women are in leadership positions with their male counterpart, the feminine qualities such as intuitive, compassionate and emotional nature will bloom. â€Å"The gateway to our intuitive wisdom and our connection to the rater landscape of hu manity is emotions,† quote Tabby Fiddle.

Accounting Measures Of Corporate Liquidity Leverage And Costs Of Financial Distress Finance Essay - Free Essay Example

Sample details Pages: 19 Words: 5683 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? John, Teresa A. Financial Management. Tampa: Autumn 1993. Vol. 22, Iss. 3; pg. 91 Abstract (Summary) The costs of financial distress are those resulting from the costs of asset restructuring or the costs of informal or formal debt restructuring. The costs of financial distress will have important implications for the liquidity and leverage policies of a firm. When the costs of financial distress are high, the firm may maintain a larger fraction of its assets as liquid assets or be cautious in taking on debt. Based on a simple model of financial distress, a positive relationship between the optimal liquidity maintained by a corporation and the costs of illiquidity of its assets is postulated. These costs include costs of distressed asset sales and loss of going-concern value in liquidation. Some new proxies are proposed for the costs of illiquidity and the indirect costs of financial distress. The study sample consists of 223 major US corporations with an average annual liquidity ratio of 6.3% in the period from 1979 to 1981.   Ãƒâ€šÃ‚ »   Jump to indexing (documen t details) Full Text  (5708   words) Copyright Financial Management Association Autumn 1993 * A general view of financial distress is that it results from a mismatch between the currently available liquid assets of a firm and its current obligations under its hard financial contracts. Mechanisms for dealing with financial distress rectify the mismatch by either restructuring the assets or restructuring the financing contracts, or both. The costs of financial distress are those resulting from the costs of asset restructuring (converting illiquid assets to liquid ones) or the costs of informal or formal debt restructuring. The costs of financial distress will have important implications for the liquidity and leverage policies of a firm. In particular, when the costs of financial distress are high, the firm may maintain a larger fraction of its assets as liquid assets and/or be cautious in taking on debt (hard contracts). In this study, I analyze the relationship between the costs of financial distress and (i) the corporate liquidity policy, and (ii) the leverage policy of a firm. Liquid assets constitute a considerable portion of total assets and have important implications for the firms risk and profitability. For instance, Baskin [6] reports that among his sample of 338 major U.S. corporations, 9.6% of invested capital was held in cash and marketable securities in 1972. In our sample of 223 major U.S. corporations, the average annual liquidity ratio was 6.3% in the period 1979-1981. Kallberg [19] documents that top managers pay a lot of attention to management of corporate liquidity. In his book on liquidity management, Kallberg [19] provides six stages of decreasing liquidity as follows: (i) meeting current obligations from current cash flows, cash balances and short-term investments; (ii) using short-term credit; (iii) careful management of cash flows, e.g., through management of credit policy and inventory levels; (iv) renegotiatio n of debt contracts; (v) asset sales; and (vi) bankruptcy. This scheme suggests a direct link between liquidity policies pursued by management and costs of financial distress. Using various proxies for the different direct and indirect costs at various stages of financial distress, its relationship to corporate liquidity is examined. Although several measures of corporate liquidity have been suggested, I focus on the accounting measures of liquidity, such as the liquid ratio. A second response to high financial distress costs is to limit the use of debt financing. Although the inverse relationship between bankruptcy costs and leverage has been studied previously, I will propose new measures of asset illiquidity and indirect bankruptcy costs in exploring the relationship between leverage and the costs of financial distress.(1) The remainder of the paper is organized as follows. In Section I, a simple model of dealing with financial distress is used to develop testable relationship s between (i) distress costs and corporate liquidity policy, and (ii) distress costs and corporate leverage. Several proxies for different components of financial distress are developed in Section I.C. Methodology and data are described in Section II. Results are presented in Section III. Section IV concludes. I. DEVELOPMENT OF HYPOTHESES A. A MODEL OF FINANCIAL DISTRESS The financing contracts of a firm can be loosely categorized into hard and soft contracts. An example of a hard contract is a coupon debt contract which specifies periodic payments by the firm to the bondholders. If these payments are not made on time, the firm is considered to be in violation of the contract and the claimholders can seek specified and unspecified legal recourses to enforce the contract. Common stock and preferred stock are examples of soft contracts. Here, even though its claimholders have expectations of receiving current payouts from the firm in addition to their ownership rights, the le vel and frequency of these payouts are often policy decisions made by the firm. These payouts can be suspended and/or postponed, if the liquid resources remaining in the firm after satisfying the claims of the hard contracts are not sufficient. The assets of a firm also have a natural categorization based on liquidity. Cash or cashlike (marketable) securities are liquid assets. Long-term investments (such as plant and machinery) which may only produce liquid assets in the future may be called illiquid assets. The above categorizations of the financing contracts of a firm and its assets give rise to a natural definition of financial distress. A firm is in financial distress at a given point in time when the liquid assets of the firm are not sufficient to meet the current liquidity requirements of its hard contracts. Since financial distress results from a mismatch between the currently available liquid assets and the current obligations of its hard financial contracts, mecha nisms for coping with financial distress involve correcting the mismatch by either increasing the liquidity of the assets (through asset sales) or decreasing the hardness of the debt contracts (through debt renegotiation). The total costs of accomplishing this through a combination of asset restructuring and/or debt restructuring, through formal mechanisms (e.g., Chapter 11 bankruptcy procedure) or through informal mechanisms (e.g., private debt workouts), constitute the costs of financial distress.(2) For a recent survey of the literature on financial distress and mechanisms for dealing with it through asset and/or debt restructuring, see John and John [16]. B. TESTABLE HYPOTHESES Given the above characterization of financial distress, a firm with high costs of financial distress will reduce its exposure in two ways: (i) increase the liquid component of its assets, and (ii) reduce the extent of its hard contracts (such as debt). This immediately leads to the following hypothe ses: H1 : The proportion of total assets invested by a firm in liquid assets (e.g.,cash and marketable securities) will be increasing in its costs of financial distress. H2: The proportion of debt in the capital structure of a firm will be decreasing in its costs of financial distress. In the following section, I will develop various proxies for the costs of financial distress. C. PROXIES FOR COSTS OF FINANCIAL DISTRESS Empirical proxies for the costs of financial distress are developed based on the simple economic model of coping with financial distress presented in Section I.A. Since financial distress is resolved through asset restructuring (asset sales or other liquidations) and/or financial restructuring (private or formal debt renegotiations), the costs of these different mechanisms of resolving distress will represent financial distress costs. First, let us consider the liquidation costs which are the costs incurred when assets are sold to raise cash and rem edy distress.(3) The most important cost of liquidation is the destruction of going-concern value that occurs when assets are sold to pay down debt. This loss of value will be greater for intangible assets and assets that generate firm-specific rents (e.g., growth opportunities, managerial firm-specific human capital, monopoly power, and operating synergies whose value depends on the firms assets being kept together). Financial distress will be relatively more costly for firms whose assets are more intangible or firm-specific (see John and Vasudevan [18] and Shleifer and Vishny [28]). The ratio of the firms market value to the replacement costs of its assets, defined as Tobins q, is used as a proxy for the loss of going-concern value due to asset sales (see Lindenberg and Ross [21]). Replacement costs approximate what the firms assets could be sold for piecemeal, and are positively correlated with the liquidation value of the asset. Firms with a higher market value/replacement costs ratio will have higher costs of asset liquidations. Therefore, Tobins q ratio (equal to market value/replacement costs) will be used as a proxy for the loss of going-concern value in asset sales and premature liquidations associated with financial distress. For several reasons, assets are more likely to be sold when debt is restructured in Chapter 11 rather than privately. First, automatic stay gives the debtor more power over the disposition of the firms assets, by enjoining creditors from exercising their nonbankruptcy right to sue the firm and seize collateral. Asset sales that would normally be in violation of the firms debt covenants will be allowed if the firm can convince the bankruptcy judge that such sales are necessary for the continued operation of the business. Second, since the debtor can undermine the value of lenders collateral and grant new lenders superpriority standing, fully secured lenders will in general prefer liquidation over reorganization. This may creat e additional pressure for asset sales in bankruptcy. In Chapter 11, creditors can initiate asset sales by making a motion to sell before the court. In addition, Chapter 11 cases can be converted into Chapter 7 liquidations. For a sample of Chapter 11 filings in the Southem District of New York (including nonpublic firms), White [34] finds that onethird either end up in Chapter 7 or as liquidating reorganizations. The fraction of bankruptcies converted to Chapter 7 liquidations is smaller (only five percent) in the sample studied in Gilson, John, and Lang [13]. Finally, purchasing assets from a financially distressed firm is less risky in Chapter 11, because asset sales are executed by a court order and are thus free from legal challenge. In addition, assets that are purchased from an insolvent firm that subsequently files for Chapter 11 may have to be retumed as a voidable preference or fraudulent transfet Given the costs incurred if an asset sale is later challenged or canceled, potential purchasers of an asset will prefer to deal with firms in Chapter 11. Titman [30] and Titman and Wessels [31] have argued that the costs of liquidation are higher for firms that produce unique or specialized products. Their workers and suppliers often have job-specific skills and capital, and their customers find it difficult to find altemative servicing for their relatively unique products. For these reasons, a high degree of specificity or uniqueness engenders high distress costs. Expenditures on research and development over sales (RD) and advertising over sales (ADV) are indicators of uniqueness. RD expenditures measure uniqueness because firms that sell products with close substitutes have low RD intensity since their innovations can be easily duplicated. Similarly firms marketing relatively unique products advertise intensely. Liquidation costs are also likely to be high for firms which make products requiring specialized servicing and spare parts. As a proxy for asset specificity, a dummy variable SPC is constructed, where SPC equals one for firms with SIC codes between 3400 and 4000 (firms producing machines and equipment) and zero otherwise. The variables RD and ADV will proxy for indirect costs of financial distress also through another channel. Myers [24] has argued that risky debt and financial distress can lead to underinvestment in growth options. RD expenditures and advertising expenditures create a stock of future investment options that can expire unutilized if the firm runs into financial distress. These costs can be minimized if the firm reduces its insolvency risk by maintaining high liquidity. Measures of corporate liquidity should be higher for firms with high RD and advertising. Another measure of the liquidity costs of asset restructuring is the collateral value of the assets (see Shleifer and Vishny [28]). Titman and Wessels [31] suggest two proxies for the collateral value. The ratio of inventory plus gross plant an d equipment to total assets (IGP/TA) is positively related to collateral value. The ratio of intangible assets to total assets (INT/TA) is negatively related to collateral value. The liquidity costs of asset restructuring are negatively related to collateral value. A firm with assets of high collateral value need only maintain low levels of liquidity. In other words, the liquidity measures will be decreasing in IGPlrA and increasing in INT/TA. Another proxy for the expected costs of financial distress will be the variable BR, which is a dummy variable for the actual incidence of bankruptcy (Chapter 11 filing by the firm) during a ten-year period after the liquidity decision is taken. (If the firm had a bankruptcy filing during this period, BR = 1, otherwise BR = O.) This variable is meant to proxy for factors not included above, which the management may have considered when the liquidity decision was taken, as potentially affecting the probability of bankruptcy. Corporate liquidi ty will be increasing in the probability of bankruptcy.(4) Given the above proxies for costs of financial distress, hypotheses H1 and H2, as developed in Section I.B., can now be tested. II. METHODOLOGY AND DATA A. METHODALOGY In the first part, the relationship between corporate liquidity and expected costs of financial distress is examined. Here, a linear relationship between measures of liquidity and proxies for expected costs of financial distress will be used. Different specifications of a linear model of the following form will be tested: Equation (1) LIQR = a sub 0 +a sub 1 +a sub 2 RD+a sub 3 ADV+a sub 4 BR+a sub 5 SPC +a sub 6 DEBT+a sub 7 CASHCY+a sub 8 GROWTH +a sub 9 LSALES+a sub 10 OI/S+a sub 11 OI/TA +a sub 12 IGT/TA+a sub 13 INT/TA+a sub 14 VOI+e sub 1 where LIQR = the liquidity ratio, measured as the average ratio of cash and marketable securities to total assets in 1979-1981; Q = the average Tobins q ratio in the peniod 1979-1981, which is calculated as the market value of the firm (sum of the market value of the preferred stock, the market value of the common stock, the market value of long-term debt adjusted for its age structure, less the short-term assets) divided by the replacement costs of the firms plant and inventories. The associated numbers are obtained from the Griliches RD Master File (Cummins et al [10]); RD = the average ratio of RD expenditures to capital expenditures in 1979-1981; ADV = the average ratio of advertising expenditures to capital expenditures in 1979-1981; BR = 1 if the firm has filed for Chapter 11 during 1981-1991, and equals 0 otherwise; SPC = 1 if the firm has an SIC code between 3400 4000 (firm produces machinery and equipment); equals 0 otherwise; DEBT = the average debt ratio (calculated as the sum of short-term nonspontaneous debt and long-term debt) divided by the sum of short-term nonspontaneous debt, long-term debt, preferred stock and market value of equity) in the period 1979-1981; LTDEBT = the average debt ratio (calculated as long-term debt over total assets) in the period1979-1981; CASHCY = the average cash cycle (calculated as the difference of average inventory age plus average collection period minus average payment period) in 1979-1981; GROWTH = the average compound growth rate of sales between 1974 and 1979; LSALES = the natural logarithm of average annual sales in 1979-1981; VOI = the volatility of operating income, estimated as the standard deviation of the first-level differences of EBIT in the years 1975-1978 divided by average total assets in the same period (see Bradley et al [71); OI/S = the average ratio of operating income over sales in 1979-1981; OI/TA = the average ratio of operating income over total assets in 1979-1981; IGP/TA = the average ratio of inventory plus gross plant and equipment to total assets in 1979-1981; INT/TA = the average ratio of intangible assets to total assets in 1979- 1981; and e sub 1 = the error term. The main explanatory variables on which this study focuses are the proxies for the expected costs of financial distress. In Section I.C., it was argued that Tobins q ratio (Q) represents a measure of the indirect costs of financial distress. WeR will be increasing in e. The dummy variable BR proxies for the probability of bankruptcy. An underlying assumption is that the ex post incidence of Chapter 11 filings during 1979-1989 would equal the ex ante estimation made by the management in 1979 (based on some bankruptcy prediction models, see, e.g., Altman [11). LIQR will be increasing in BR. The other proxies for costs of financial distress are those that are related to costs of liquidation of assets. As argued in Section LC., the costs of liquidation are higher for firms that produce unique or specialized products and lower for firms with assets of high collateral value. The costs of liquidation, and hence LIeR, are increasing in RD, ADV, SPC and INT/TA and decreasing in IGP/TA, as argued earlier in Section I.C. The variables LSALES, CASNCY, DEBT, OI/S, OI/TA and VOI are control variables to account for the level of liquidity justified by transaction and precautionary motives. The variable LSALES proxies for the transaction needs of the firm. The cash cycle of the firm (CASHCY) measures the time it takes to recoup cash outlays, and hence it affects cash balances. A larger cash cycle (say, for example, due to a large average collection period) implies a larger amount of receivables, which are near-cash assets which will be converted into liquid assets periodically. Therefore a large cash cycle is a net source of liquidity which is not already accounted for in LIQR. Corporate liquidity should be decreasing in the length of the cash cycle (CASHCY). Similarly, operating incomes or cash flows provide a ready source ofliquidity. Firms with ready access to debt markets and other sources of borrowing can also use debt as a su bstitute for liquidity maintenance. Therefore, firms with good operating incomes (OIlS or OI/TA) or ready sources of financing (proxied by measures of debt) can afford to keep lower levels of liquidity. Hence liquidity ratios (LIQR) would be lower for firms with higher operating incomes or debt. The growth of sales (as proxied by GROWTH) may also provide a source of liquidity. If sales growth and corresponding cash flows build up the liquid reserves of the firm faster than its use, then liquidity maintained would be decreasing in GROWTH. The variable VOI, volatility of operating income will capture the maintenance of liquidity for precautionary reasons (i.e., to avert shortfalls of cash). Hence liquidity ratio (LIQR) would be increasing in VOI. Costs of financial distress may not be the only reason for the relationship between corporate liquidity and variables such as RD and advertising expenditure. RD and advertising expenditure may contribute to building up of assets and resour ces characterized by asymmetric information between corporate insiders and outside investors in the market. In this setting, Myers and Majluf [26] have argued that firms can optimally maintain financial slack (i.e., excess liquidity) which can be used to finance projects, avoiding the adverse-selection costs of interacting with a less informed market. This would give rise to an increasing relationship between corporate liquidity and ADV and/or RD. In summary, the predicted signs of the coefficients in the regression model in Equation (1) are positive for a sub 1 , a sub 2 , a sub 3 , a sub 4 a sub 5 a sub 13 and a sub 14 , and negative for a sub 6 , a sub 7 , a sub 8 a sub 10 , a sub 11 and a sub 12 . The coefficient of LSALES is indeterminate. In the second part, the relationship between measures of debt and expected costs of financial distress is examined. In addition to the debt measure (DEB73 defined following Equation (1), I will introduce another debt measure called long -term debt (LTDEB defined as follows: LTDEBT is the average debt ratio (calculated as long-term debt over total assets) in the period 1979-1981. A linear relationship between the debt measure (DEBT or LTDEBT) and proxies for the costs of financial distress will be used. Different specifications of a model of the following form for both of the debt measures will be estimated: Equation (2) DEBT or LTDEBT} = b sub 0 +b sub 1 Q+b sub 2 RD+b sub 3 SPC+ b sub 4 JGP/TA+b sub 5 OI/S+b sub 6 OI/T+b sub 7 GROWTH+ b sub 8 LSALES+b sub 9 VOI+b sub 10 BR+e sub 2 where the variables are as defined following Equation (1), and e sub 2 is the error term. As argued before, Tobins q is a proxy for indirecl bankruptcy costs and costs of illiquidity which would have a negative impact on the use of debt. Similarly, RD and SPC are associated with higher costs of financial distress. Hence, both measures of debt should be decreasing in Q, RD and SPC. IGP/TA denotes the collateral value of the as sets and it is associated with lower costs of illiquidity in an asset sale or premature liquidation. Hence, assets with high collateral value have a large debt capacity. Debt measures will be positively related to IGP/TA. Firms with large cash inflows need less extemal financing and less debt financing.(5) In other words, firms with large operating incomes should have less borrowing. Debt should be decreasing in OI/S and OI/TA. Finally, a higher incidence of bankruptcy will be associated with larger levels of debt. In summary, the expected sign for coefficients b sub 1 , b sub 2 , b sub 3 and b sub 10 is positive; it is negative for b sub 4 , b sub 5 , b sub 6 , and b sub 7 . Coefficients b sub 8 and b sub 9 of control variables LSALES and VOI may be positive or negative. B. THE DATA The original sample contains 223 firms from the Fortune 500 companies in 1980 for which we were able to find the q ratio in the Griliches RD Master File for 1979-1981 (Cummins et al [10]) . Data to calculate the remaining variables LSALES, CASHCY, VOI, GROWTH, LTDEBT, DEBT, RD and ADV were retrieved from the COMPUSTAT tapes.(6) Exhibit 1 contains some descriptive statistics (mean, median, standard deviation, minimum and maximum value) of the variables. (Exhibit 1 omitted) For the firms in our sample, the liquidity ratio, LIeRAT, ranges from a minimum value of 0.01 to a maximum of 0.29, with a mean of 0.06 and median of 0.05. Of the firms, 43% had liquidity ratios in excess of 0.05, whereas 19% had liquidity ratios of 0.10. Thus, for a typical irm, liquidity requires a nontrivial commitment of capital. The q ratio ranges from 0.20 to 4.98 with a mean of 0.95 and a median of 0.69. The debt ratio ranged from 0 to 0.8 with a mean of 0.30 and a median of 0.29. Similarly, the long-term debt ratio ranged from 0 to 0.43 with a mean of 0.18 and a median of O.17. Therefore, the sample is representative of large firms which are not currently in financial trouble. III. RES ULTS Exhibit 2 presents regression results from five different specifications of the basic model in Equation (1). (Exhibit 2 omitted) In all specications, the coefficient of the variable e, the primary proxy for financial distress (Tobins q), is positive and significant at the 0.01 level. Other proxies for high liquidation costs, such as research and development (RD) and advertising expenditure (ADV), were also positive and significant at the 0.01 level in regressions (1), (2), (3) and (5) where they were included. The coefficient of BR, the dummy variable for the incidence of bankruptcy, is also positive and significant in specifications (3) and (5). Together, these results provide strong evidence in support of hypothesis H1 that corporate liquidity is increasing in proxies of financial distress costs. The coefficients of the control variables also had the predicted signs, many of them statistically significant. As predicted, variables which stand for ready sources of liquidi ty, such as CASHCY, DEBT, GROWTH, IGP/TA, OI/S and OI/TA, have a negative relationship to corporate liquidity. In all specifications, i.e., (2), (3), (4) and (5), where DEBT is included, its coefficient is negative and significant at the 0.01 level. Similarly, the coefficient of GROWTH is negative and significant at the 0.01 level in specifications (2) through (4), and at the 0.05 level in specification (1). Coeficients of the proxy for collateral value, IGP/TA, and the proxies for intermediate cash flows (OI/S and OI/TA) are also negative and significant at the 0.05 level in all regressions that include them. Overall, colporate liquidity is decreasing in proxies for altemate sources of liquidity (as predicted). This negative relationship is strong, as suggested by the statistical significance of the coefficients of CASHCY and DEBT. The coefficients of SPC, NTlTA and LSALES are not statistically significant. As predicted, a higher eamings volatility implies a higher corporate liq uidity need (the coefficient of VOI is positive and significant at the 0.10 level). In summary, corporate liquidity maintained is increasing in proxies of financial distress costs; it is decreasing in the collateral value of the assets, and other sources of liquidity available, such as intermediate cash flows, projected growth in cash flows, sources of borrowing and the length of the cash cycle. In Exhibit 3, I present regression results on different specifications of the model in Equation (2), using two measures of debt, DEBT and LTDEBT, as dependent variables. (Exhibit 3 omitted) In all three specifications with DEBT as the dependent variable, the coefficient of Tobins q, the main proxy for financial distress costs, is negative (as predicted) and significant at the 0.01 level. Asset specificity (as proxied by the dummy variable SPC) is negative (as predicted) and significant in specifications (1) and (2). Proxies for intermediate cash flows (OI/S and OI/TA) have coefficients which are negative (as predicted) and significant at the 0.01 level in specifications (1), (2) and (3). In summary, corporate debt levels are decreasing in proxies of financial distress costs (e and SPC) and proxies of intermediate cash flows (OI/S and OI/TA). All three regressions have adjusted R sup 2 values around 50%. In the two specifications of Equation (2) presented in the last two columns of Exhibit 3, LTDEBT is the dependent variable. As predicted, the coefficients for proxies of financial distress costs (Q and SPC) are negative in both specifications. The coefficients of Q are statistically significant at 0.01 levels in specifications (1) and (2), and those of SPC are significant at the 0.05 level in specification (2). Overall, this negative relationship with financial distress proxies seems to be the strongest. As predicted, firms with larger long-term debt have a higher probability of bankuptcy (coefficient of BR is positive and significant at the 0.05 level). The co efficients of OI/S, OI/TA and IGP/TA are not significant. Overall, long-term debt is decreasing in proxies of financial distress costs. In summary, the evidence in Exhibit 3 is consistent with hypothesis H2 that debt levels are decreasing in proxies of financial distress costs. We have used a new measure of destruction of going-concem value (i.e., Tobins q) and found such a relation to be strong with either measure of leverage, DEBT or LTDEBT, as the dependent variable.(7) IV. CONCLUSION Based on a simple model of financial distress, I postulate a positive relationship between the optimal liquidity maintained by a corporation and the costs of illiquidity of its assets. These costs include costs of distressed asset sales and loss of going-concern value in liquidations. Some new proxies are proposed for the costs of illiquidity and the indirect costs of financial distress. These include Tobins q, RD and advertising expenditures, an index of asset specificity and an index of t he probability of bankruptcy. The liquidity ratio is documented to be positively related to these proxies of financial distress costs. It is negatively related to proxies for altemate sources of anticipated liquidity such as intermediate cash flows, debt financing, length of cash cycle and the collateral value of assets. Total debt is also negatively related to Tobins q and asset specificity as well as measures of intermediate cash flows. Long-term debt is also negatively related to Tobins q and asset specificity. Overall, the evidence is strongly consistent with the hypothesized relationships between corporate liquidity and financial distress costs, and corporate leverage and financial distress costs. FOOTNOTES (1) Recent cross-sectional studies include Feni and Jones [11], Flaath and Knoeber [12], Marsh [23], Titman [29], Castanias [9], Bradley, Jarrell, and Kim [7], Auerbach [5], Long and Malitz [22], and Titman and Wessels [31]. Some of these papers (e.g., Titman [29], Bradley, Jarrell, and Kim [7], Auerbach [5], Long and Malitz [22], and Titman and Wessels [31]), examine uariables that are similar to some of those examined here. The studies find a negative relation between both research and development and advertising and leverage, but have mixed findings relating to the different measures of nondebt tax shields and leverage and volatility and leverage. (2) Haugen and Senbet [15] argue that capital market mechanisms could accomplish restructuring of the problematic hard contracts and replacing them with a softer mix. They argue that the transactions cost of these private mechanisms are small and should form an upper bound on the costs of coping with financial distress. (3) Brown, James, and Mooradian [8], Asquith, Gertner, and Scharfstein [4], Lang, Poulsen, and Stulz [20], and Ofek [27] present evidence of asset restructuring by firms in distress. All the above papers document that asset sales are frequently used by financially distressed firms in their sample, either during private debt restructuring or the formal Chapter 11 reorganization. (4) In analyzing the costs of bankruptcy, it has become common to distinguish between direct and indirect costs. Direct costs are out-of-pocket transactions costs (such as charges for legal and investment banking services). Indirect costs include all other costs related to the firms bankruptcy. For example, managers may forego profitable investment opportunities because they are distracted by dealings with creditors of the bankruptcy court. Warner [32], Ang et al [3], Altman [2], and Weiss [33] have estimated the costs of Chapter 11 reorganizations empirically. (5) Over 95% of extemal financing by firms is debt (see John and John [17]). This is also suggested by the pecking order hypothesis in Myers [25]. (6) Due to the varying availability of these data, we utilize samples of different sizes in our tests. (7) To consider possible structural dependencies between model s (1) and (2), I estimated the coefficients simultaneously using a SYSLIN procedure of SAS (a two-stage least-squares procedure) with appropriate restrictions on the coefficients. The estimates were virtually identical and hence not reported. See Green [14, Ch. 19] for details. REFERENCES 1. E. Altman, Corporafe Financia[ Distress, New York, John Wiley Sons, 1983. 2. E. Altman, A Further Empirical Investigation of the Bankruptcy Cost Question, Journal of Finance (September 1984), pp. 1067-1089. 3. J. Ang, J. Chua, and J. McConnell, The Administrative Costs of Corporate Bankruptcy: A Note, Journal of Finance (March 1992), pp. 219-226. 4. P. Asquith, R. Gertner, and D. Scharfstein, Anatomy of Financial Distress: An Examination of Junk-Bond Issuers, Unpublished Manuscript, MIT and University of Chicago, October 1991. 5. A. Auerbach, Real Determinants of Corporate Leverage, in Corporate Capital Structures in the United Stares, B. Friedman (ed), Chicago, University of Chicago Press, 1985. 6. J. Baskin, Corporate Liquidity in Games of Monopoly Power, Review of Economics and Staristics (May 1987), pp. 312-319. 7. M. Bradley, G. Jarrell, and E.H. Kim, On the Existence of an Optimal Capital Structure: Theory and Evidence, Journal of Finance (July 1984), pp. 857-878. 8. D. Brown, C. James, and R. Mooradian, The Information Content of Exchange Offers Made by Distressed Firms, Unpublished Manuscript, University of Florida, May 1992. 9. R. Castanias, Bankruptcy Risk and qptimal Capital Structure, Journal of Finance (December 1983), pp. 1617-1635. 10. E. Cummins, B. Hall, and E. Laderman, The RD Master File: A Documentation, Mimeograph, National Bureau of Economic Research, 1982. 11. M. Ferri and W. Jones, Determinants of Financial Structure: A New Methodological Approach, Journal of Finance (June 1979), pp. 631-644. 12. D. Flath and C. Knoeber, Taxes, Failure Costs, and Optimal Industry Capital Structure: An Empirical Test,Journal of Finance (March 1980),pp. 99-117. 13. S.C. Gilson, K. John, and L. Lang, Troubled Debt Restructurings: An Empirical Study of Private Reorganization of Firms in Default, Journal of Financial Economics (October 1990), pp. 315-353. 14. W.H. Green, Econometric Analysis, New York, Macmillan Publishing Company, 1990. 15. R. Haugen and L.W. Senbet, The Insignificance of Bankruptcy Costs to the Theory of Optimal Capital Structure, Journal of Finance (June 1978), pp. 383-393. 16. K. John and T.A. John, Coping with Financial Distress: A Survey, Financial Markets, lnstitutions and Instruments (December 1992), pp. 63-78. 17. K. John and T.A. John, Private Corporate Funding, The New Palgrave Dictionary of Money and Finance, McMillian Press Reference Books, October 1992. 18. K. John and G.K. Vasudevan, Bankruptcy and Reorganization: A Theory of the Choice Between Workouts and Chapter 11. Unpublished Manuscript, New York University, December 1992. 19. J. Kallberg and K. Parkin son, Corporate Liquidity Management and Measurement, Homewood, IL, Irwin, 1992. 20. L. Lang, A. Poulsen, and R.M. Stulz, Asset Sales, Leverage, and the Agency Costs of Managerial Discretion, Unpublished Manuscript, Ohio State University, February 1992. 21. E. Lindenberg and S. Ross, Tobins Q Ratio and Industrial Organization, Journal of Business (January 1981), pp. 1-32. 22. M.S. Long and E.B. Malitz, Investment Pattems and Financial Leverage, in Corporate Capital Structures in the United States, B. Friedman (ed.), Chicago, University of Chicago Press, 1985. 23. P. Marsh, The Choice Between Equity and Debt: An Empirical Study, Journal of Finance (March 1982), pp. 121-144. 24. S.C. Myers, Determinants of Corporate Borrowing, Journal of Financial Economics (November 1977), pp. 147-176. 25. S.C. Myers, The Capital Structure Puzzle. Journal of Finance (July 1984), pp. 575-592. 26. S.C. Myers and N. Majluf, Corporate Financing and Investment Decisions When Firms Have Information Investors Do Not Have. Journal of Financial Economics (June 1984), pp. 187-221 . 27. E. Ofek, Capital Structure and Firm Response to Poor Performance: An Empirical Analysis. Journa[ of Financial Economics (August 1993).pp. 3-30. 28. A. Shleifer and R. Vishny, Liquidation Values and Debt Capacity: A Market Equilibrium Approach, Journal of Finance (September 1992), pp. 1343-1366. 29. S. Titman, Determinants of Capital Structure: An Empirical Analysis, Working Paper, University of California at Los Angeles, 1982. 30. S. Titman, The Effect of Capital Structure on a Firms Liquidation Decision, Journal of Financial Economics (March 1984), pp. 137-151. 31. S. Titman and R. Wessels, The Determinants of Capital Structure Choice, Journal of Finance (March 1988), pp. 1-19. 32. J. Warner, Bankruptcy Costs: Some Evidence, Journal of Finance (May 1977), pp. 337-347. 33. L. Weiss, Bankruptcy Resolution: Direct Costs and Violation of Priority of Claims, Journal of Financial Economics (October 1990), pp. 285-314. 34. M. White,Bankruptcy, Liquidation and Reorganization, in Handbook of Modern Finance, D.E. Logue (ed.), Warren, Gorham, Lamont, 1990. Teresa A. John is an Assistant Professor of Accounting at the Stern School of Business, New York University, New York, New York. I thank Elizabeth Bagnani and Edith Hotchkiss for providing some of the data used in this study for many helpful comments. Don’t waste time! 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