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Bad news does not always travel fast: evidence from Chapter 11 bankruptcy filings

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  • Luís Miguel Serra Coelho
  • Henk Berkman

Abstract

type="main" xml:id="acfi12063-abs-0001"> This paper examines the stock price performances of 275 non-financial, non-utility U.S. industrial firms that continue trading on the main exchanges after filing for Chapter 11 bankruptcy between 1 October 1979 and 17 October 2005. This paper identifies a negative and statistically significant post-bankruptcy drift that lasts for at least 6 months. This finding adds to the literature showing that the market is unable to process bad public news events in a timely manner. Further analysis suggests that the theoretical model proposed by Hong and Stein (1999) can be used to help explain this market-pricing anomaly.

Suggested Citation

  • Luís Miguel Serra Coelho & Henk Berkman, 2015. "Bad news does not always travel fast: evidence from Chapter 11 bankruptcy filings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(2), pages 415-442, June.
    • Handle: RePEc:bla:acctfi:v:55:y:2015:i:2:p:415-442
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    File URL: http://hdl.handle.net/10.1111/acfi.2015.55.issue-2
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