This study tests predictions that pricing multiples on and incremental expl
anatory power of equity book value (net income) increase (decrease) as fina
ncial hearth decreases. Tests using a sample of 396 bankrupt firms and test
s using a larger, pooled sample both yield inferences consistent with predi
ctions. Findings are robust to inclusion of controls for industry, size, re
turn-on-equity, and volatility of equity returns. Equity book value and net
income multiples and incremental explanatory power vary predictably across
three illustrative industries, selected based on the likely extent of unre
cognized intangible assets. (C) 1998 Elsevier Science B.V, All rights reser
ved. JEL classification: M4; G33; C2.