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The practice of investing in distressed companies is popularly known as “vulture” investing. The risks of investing in this market are highly firm specific and idiosyncratic. Investors who are adept at managing these risks, who understand the legal rules that must be followed in corporate bankruptcy, and who are skilled at identifying or creating value in a distressed situation consistently earn the highest returns in this market.
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Stuart C. Gilson (1995) studied this question.
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