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Investing in Bankrupt Firms

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  • Morse, Dale
  • Shaw, Wayne
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    Abstract

    The authors examine the investment characteristics of firms electin g to enter bankruptcy between 1973 and 1982. Comparisons are made before and after the Bankruptcy Reform Act of 1978. The results indicate that the 1978 Act had no significant impact on bankruptcy decisions or resolutions for actively traded firms. Trading in bankru pt firms' securities is becoming more common, but no abnormal returns appear to be available. Systematic risk does not change significantl y 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. Copyright 1988 by American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 43 (1988)
    Issue (Month): 5 (December)
    Pages: 1193-1206

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    Handle: RePEc:bla:jfinan:v:43:y:1988:i:5:p:1193-1206

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    Cited by:
    1. Li, Yuanzhi & Zhong, Zhaodong (Ken), 2013. "Investing in Chapter 11 stocks: Trading, value, and performance," Journal of Financial Markets, Elsevier, vol. 16(1), pages 33-60.
    2. Iraj Hashi, 1995. "The Economics of Bankrupcy, Reorganisation and Liquidation: Lessons for East European Transitional Economies," CASE Network Studies and Analyses 0041, CASE-Center for Social and Economic Research.
    3. Indro, Daniel C. & Leach, Robert T. & Lee, Wayne Y., 1999. "Sources of gains to shareholders from bankruptcy resolution," Journal of Banking & Finance, Elsevier, vol. 23(1), pages 21-47, January.
    4. Chi, Li-Chiu & Tang, Tseng-Chung, 2007. "Impact of reorganization announcements on distressed-stock returns," Economic Modelling, Elsevier, vol. 24(5), pages 749-767, September.
    5. Dan Galai & Alon Raviv & Zvi Wiener, 2003. "Liquidation Triggers and the Valuation of Equity and Debt," Finance 0305002, EconWPA.
    6. Stavros Peristiani, 2003. "Evaluating the riskiness of initial public offerings: 1980-2000," Staff Reports 167, Federal Reserve Bank of New York.

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