The influence of bankruptcy law on equity value of financially distressed firms: A European comparative analysis

The reaction of stock prices to bankruptcy filing has been frequently analysed in the financial literature. In this paper we adopt a different approach to that of traditional study, and endeavour to determine whether the reaction of markets is conditioned by the orientation of bankruptcy law. Our re...

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Bibliographic Details
Published in:International review of law and economics 2009-09, Vol.29 (3), p.229-243
Main Authors: López Gutiérrez, Carlos, García Olalla, Myriam, Torre Olmo, Begoña
Format: Article
Language:English
Subjects:
Bankruptcy
Bankruptcy law
Bankruptcy laws
Company insolvency
Comparative analysis
Corporate debt
Corporate insolvency
Corporate insolvency Financial restructuring processes Bankruptcy law Market valuation
Equity
Europe
Financial restructuring processes
Legal codes
Legal norms
Market economy
Market valuation
Stock prices
Stocks
Studies
Valuation
Value
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Summary:The reaction of stock prices to bankruptcy filing has been frequently analysed in the financial literature. In this paper we adopt a different approach to that of traditional study, and endeavour to determine whether the reaction of markets is conditioned by the orientation of bankruptcy law. Our results lead us to conclude that it is actually the type of bankruptcy law that conditions the valuation of firm's stocks. We have also found that the drop in share value is greater in creditor-oriented systems, while the negative returns are lower in debtor-oriented systems.
ISSN:0144-8188
1873-6394
DOI:10.1016/j.irle.2009.02.002