Bad news does not always travel fast: evidence from Chapter 11 bankruptcy filings

This paper examines the stock price performances of 275 non‐financial, non‐utility U.S. industrial firms that continue trading on the main exchanges after filing for Chapter 11 bankruptcy between 1 October 1979 and 17 October 2005. This paper identifies a negative and statistically significant post‐...

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Bibliographic Details
Published in:Accounting and finance (Parkville) 2015-06, Vol.55 (2), p.415-442
Main Author: Coelho, Luís Miguel Serra
Format: Article
Language:English
Subjects:
Bankruptcy
Bankruptcy reorganization
Chapter 11 bankruptcy
Information diffusion rate
Market prices
Market-pricing anomaly
Stock prices
Studies
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Summary:This paper examines the stock price performances of 275 non‐financial, non‐utility U.S. industrial firms that continue trading on the main exchanges after filing for Chapter 11 bankruptcy between 1 October 1979 and 17 October 2005. This paper identifies a negative and statistically significant post‐bankruptcy drift that lasts for at least 6 months. This finding adds to the literature showing that the market is unable to process bad public news events in a timely manner. Further analysis suggests that the theoretical model proposed by Hong and Stein (1999) can be used to help explain this market‐pricing anomaly.
ISSN:0810-5391
1467-629X
DOI:10.1111/acfi.12063