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The Equity Performance of Firms Emerging from Bankruptcy

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Author Info

  • Allan C. Eberhart

    (Georgetown University,)

  • Edward I. Altman

    (New York University)

  • Reena Aggarwal

    (Georgetown University,)

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    Abstract

    This study assesses the stock return performance of 131 firms emerging from Chapter 11. Using differing estimates of expected returns, we consistently find evidence of large, positive excess returns in 200 days of returns following emergence. We also examine the reaction of our sample firms' equity returns to their earnings announcements after emergence from Chapter 11. The positive and significant reactions suggest that our results are driven by the market's expectational errors, not mismeasurement of risk. The results provide an interesting contrast, but not a contradiction, to previous work that has documented poor operating performance for firms emerging from Chapter 11. Copyright The American Finance Association 1999.

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    Bibliographic Info

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

    Volume (Year): 54 (1999)
    Issue (Month): 5 (October)
    Pages: 1855-1868
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    Handle: RePEc:bla:jfinan:v:54:y:1999:i:5:p:1855-1868

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    Cited by:
    1. Martina Nardon, 2005. "Valuing defaultable bonds: an excursion time approach," Finance 0511015, EconWPA.
    2. James Cox & Stephen Hayne, 2006. "Barking up the right tree: Are small groups rational agents?," Experimental Economics, Springer, vol. 9(3), pages 209-222, September.
    3. Benjamin, David, 2006. "Fast bargaining in bankruptcy," Discussion Paper Series In Economics And Econometrics 0601, Economics Division, School of Social Sciences, University of Southampton.

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