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Industry Structure and Ripple Effects of Bankruptcy Announcements

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  • Cheng, Louis T W
  • McDonald, James E
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    Abstract

    The market structure of an industry plays an important role in determining the stock market performance of surviving firms during intra-industry bankruptcy announcements. On evaluating the announcement effects of a survivor sample from each of two industries with very different market structures, namely the airline industry and the railroad industry, we find that the airline sample received significant abnormal returns (positive ripple) while the railroad sample experiences significant abnormal losses (negative ripple). Furthermore, the differences of the abnormal returns from the two samples also are statistically significant. These findings demonstrate support for the market structure hypothesis (MSH), but cast doubt on the contagion effect hypothesis (CEH). Copyright 1996 by MIT Press.

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    Bibliographic Info

    Article provided by Eastern Finance Association in its journal The Financial Review.

    Volume (Year): 31 (1996)
    Issue (Month): 4 (November)
    Pages: 783-807

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    Handle: RePEc:bla:finrev:v:31:y:1996:i:4:p:783-807

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    Web page: http://www.easternfinance.org/
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    Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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    Cited by:
    1. Chi, Li-Chiu, 2009. "Contagion and competitive effects of plan confirmation of reorganization filings: Evidence from the Taiwan Stock Market," Economic Modelling, Elsevier, vol. 26(2), pages 364-369, March.
    2. Joann Noe Cross & Robert A. Kunkel, 2012. "Andersen implosion over Enron: an analysis of the contagion effect on Fortune 500 firms," Managerial Finance, Emerald Group Publishing, vol. 38(7), pages 678-688.
    3. Branch, Ben, 2002. "The costs of bankruptcy: A review," International Review of Financial Analysis, Elsevier, vol. 11(1), pages 39-57.
    4. R. Elliott & Michael Highfield & Mark Schaub, 2006. "Contagion or Competition: Going Concern Audit Opinions for Real Estate Firms," The Journal of Real Estate Finance and Economics, Springer, vol. 32(4), pages 435-448, June.
    5. Akhigbe, Aigbe & Johnston, Jarrod & Madura, Jeff, 2006. "Long-term industry performance following IPOs," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(4), pages 638-651, September.
    6. Chi, Li-Chiu & Tang, Tseng-Chung, 2008. "The response of industry rivals to announcements of reorganization filing," Economic Modelling, Elsevier, vol. 25(1), pages 13-23, January.

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