Publication Type

Journal Article

Publication Date

6-2012

Abstract

Shareholders suffer huge losses when firms they own file Chapter 11. Interestingly, even shareholders of rival companies experience statistically significant losses. We examine how the bad news associated with a bankruptcy filing is transferred to the filing firm’s rivals. Using revisions in analysts’ earnings forecasts as a proxy for changes in expected future cash flows, we find that after a bankruptcy filing the market revises downward its cash flow expectations for rivals. Regression analysis confirms a positive relation between changes in expected cash flow and stock market reactions. These findings are consistent with our hypothesis that bad news associated with bankruptcy filings are transferred to rivals through reductions in expected future cash flows.

Keywords

Chapter 11, Sharegolders, Bankruptcy Filings, Rivals

Discipline

Finance and Financial Management

Research Areas

Finance

Publication

Corporate Ownership and Control

Volume

9

Issue

4

First Page

262

Last Page

268

ISSN

1810-3057

Publisher

Virtus Interpress

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