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The main goal of our study is to investigate whether the impact of an exogenous shock to the financial markets on the stock returns of firms is conditional on the firms’ probability of bankruptcy. We predict that firms with higher probability of bankruptcy experienced more negative impact on stock returns following the attacks of September 11, 2001, a negative exogenous shock to the financial market. When we examined the stock market performances of the firms after the crisis, we found that stocks of firms that were deemed to be in financial distress based on Z-Score were more negatively impacted by the September 11 crisis than the stocks of firms deemed financially safe.

finance, bankruptcy, exogenous shock to the financial markets, financial distress, Z-Score