Beginning in the 1990s, firms often continue to trade on the major national exchanges after Chapter 11 bankruptcy filings. For bankruptcies filed from 1993-2003, we find that the more negative the filing period price reaction, the more favorable the immediate post- filing returns, on average. This reversal is not attributable to bid-ask bounce, it holds after controlling for other factors associated with post-filing returns, and it appears more attributable to the activities of large traders than to small traders. Supplementary tests reveal that the pattern of post-filing returns differs significantly for bankruptcies filed in bull versus bear markets. Bankruptcies filed during the 1993 to 1999 bull market enjoy substantial but short-lived reversals averaging one-third of the filing period price plunge. These reversals are inconsistent with efficient assimilation of the bankruptcy information. In contrast, we find no evidence of post-filing reversals for bankruptcies filed from 2000 to 2003.
Bankruptcy filing, price reaction, market efficiency, bid-ask bounce
Accounting | Corporate Finance | Portfolio and Security Analysis
Financial Performance Analysis
Journal of Financial and Quantitative Analysis
Cambridge University Press
Dawkins, Mark C.; BHATTACHARYA, Nilabhra; and Smith Bamber, Linda.
Systematic Share Price Fluctuations after Bankruptcy Filings and the Investors Who Drive Them. (2007). Journal of Financial and Quantitative Analysis. 42, (2), 399-419. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/963