Publication Type

Journal Article

Publication Date

6-2007

Abstract

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.

Keywords

Bankruptcy filing, price reaction, market efficiency, bid-ask bounce

Discipline

Accounting | Corporate Finance | Portfolio and Security Analysis

Research Areas

Financial Performance Analysis

Publication

Journal of Financial and Quantitative Analysis

Volume

42

Issue

2

First Page

399

Last Page

419

ISSN

0022-1090

Identifier

10.1017/S002210900000332X

Publisher

Cambridge University Press

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