This paper investigates the beneficial economic consequences and market and accounting based valuation effects of troubled debt restructurings (TDRs) for financially distressed debtor firms. First, using extant valuation theories, it predicts the impact of TDR on shareholders' wealth. Next, it provides empirical evidence on the beneficial outcomes and informativeness of TDRs: improvement in financial profiles of debtor firms, significantly positive announcement and post-announcement excess returns, and higher excess returns to subsequently consummated restructurings and subsequent survivors. Since the current GAAP requires different reporting practices for full-settlement and modification type restructurings, market's assessment of their impact on the returns of debtor firms is also measured. Finally, a valuation model conditional on book values and earnings is used to test the value-relevance of the reported bottom lines and TDR related disclosures. The findings suggest that both types of TDRs are beneficial to debtors and informative to market participants, and the recognition of the reduction in the liability and the related gain in the financial statements would be more congruent with the valuation effects assessed by market participants.

Outliers and structural changes are commonly encountered in the time series of firms' accounting earnings. The presence of such disturbances usually have an adverse effect on model identification tools and forecasting accuracy. This paper models and forecasts quarterly accounting earnings in the presence of outliers, level shifts, and variance changes. It shows that there are significant gains in the accuracy of the fitted firm-specific models when the earnings series are adjusted for such disturbances. However, similar accuracy improvements can not be achieved on hold-out samples.