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The Equity Performance of Firms Emerging from Bankruptcy

Author

Listed:
  • Allan C. Eberhart

    (Georgetown University,)

  • Edward I. Altman

    (New York University)

  • Reena Aggarwal

    (Georgetown University,)

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.

Suggested Citation

  • Allan C. Eberhart & Edward I. Altman & Reena Aggarwal, 1999. "The Equity Performance of Firms Emerging from Bankruptcy," Journal of Finance, American Finance Association, vol. 54(5), pages 1855-1868, October.
  • Handle: RePEc:bla:jfinan:v:54:y:1999:i:5:p:1855-1868
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    Citations

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    Cited by:

    1. Edward I. Altman & Tushar Kant & Thongchai Rattanaruengyot, 2009. "Post-Chapter 11 Bankruptcy Performance: Avoiding Chapter 22," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(3), pages 53-64.
    2. Martina Nardon, 2005. "Valuing defaultable bonds: an excursion time approach," Finance 0511015, EconWPA.
    3. repec:spr:busres:v:10:y:2017:i:1:d:10.1007_s40685-016-0041-8 is not listed on IDEAS
    4. Lara Abdel Fattah & Sylvain Barthélémy & Nadine Levratto & Benjamin Trempont, 2016. "Post-reorganization survival: a semi-parametric and non-parametric analysis of firm characteristics," EconomiX Working Papers 2016-22, University of Paris Nanterre, EconomiX.
    5. Gong, Stephen X.H., 2007. "Bankruptcy protection and stock market behavior in the US airline industry," Journal of Air Transport Management, Elsevier, vol. 13(4), pages 213-220.
    6. Abu Towhid Muhammad Shaker, 2014. "The Equity Performance of U.S. Firms Emerging from Chapter 11 Bankruptcy," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 4(1), pages 19-30, January.
    7. 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.
    8. James Cox & Stephen Hayne, 2006. "Barking up the right tree: Are small groups rational agents?," Experimental Economics, Springer;Economic Science Association, vol. 9(3), pages 209-222, September.
    9. Benjamin, David, 2006. "Fast bargaining in bankruptcy," Discussion Paper Series In Economics And Econometrics 0601, Economics Division, School of Social Sciences, University of Southampton.
    10. Hsuan-Chi Chen & Sheng-Syan Chen & Chia-Wei Huang & John D. Schatzberg, 2014. "Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 156-184, January.
    11. repec:eee:jbfina:v:86:y:2018:i:c:p:87-100 is not listed on IDEAS

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