Bad news does not always travel fast: evidence from Chapter 11 bankruptcy filings |
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| Authors: | Luís Miguel Serra Coelho |
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| Affiliation: | 1. School of Economics, University of the Algarve, Faro, Portugal;2. CEFAGE, évora, Portugal |
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| Abstract: | 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. |
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| Keywords: | Chapter 11 bankruptcy Market‐pricing anomaly Information diffusion rate |
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