Article1988

Investing in Bankrupt Firms

97 citations0/0 files storedThe Journal of Finance

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Corporate Insolvency and Governance Financial Markets and Investment Strategies Financial Distress and Bankruptcy Prediction

Abstract

ABSTRACT We examine the investment characteristics of firms electing to enter bankruptcy, between 1973 and 1982. Comparisons are made before and after the Bankruptcy Reform Act of 1978. Our results indicate that the 1978 Act had no significant impact on bankruptcy decisions or resolutions for actively traded firms. Trading in bankrupt firms' securities is becoming more common, but no abnormal returns appear to be available. Systematic risk does not change significantly with the filing of bankruptcy, but there is a significant increase in return variance. The financial markets also react to various announcements of stages in the reorganization process.

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References

1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 1978THE SUPPLY OF DEALER SERVICES IN SECURITIES MARKETS 1977Bankruptcy, absolute priority, and the pricing of risky debt claims 1983The Behavior of the Common Stock of Bankrupt Firms 1980An Analysis of Risk and Return Characteristics of Corporate Bankruptcy Using Capital Market Data 1971Corporate bankruptcy in America 1973Predicting Railroad Bankruptcies in America

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1997Exit, the firm and sunk costs: reconceptualizing the corporate geography of disinvestment and plant closure 2006Are Analyst Recommendations Biased? Evidence from Corporate Bankruptcies 1995Chapter 28 Financial distress, bankruptcy and reorganization 1993The Stock Market Effects of CEO Succession in Bankrupt Firms 1993Absolute Priority Rule Violations and Risk Incentives for Financially Distressed Firms

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