Systematic Share Price Fluctuations after Bankruptcy Filings and the Investors Who Drive Them

• Main Authors: Dawkins, Mark C., BHATTACHARYA, Nilabhra, Smith Bamber, Linda
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2007
• Subjects: Bankruptcy filing; price reaction; market efficiency; bid-ask bounce; Accounting; Corporate Finance; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/soa_research/963; https://ink.library.smu.edu.sg/context/soa_research/article/1962/viewcontent/SSRN_id881508.pdf
• Institution: Singapore Management University

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.