This paper has benefited from the comments, inter alia, of Abhay Abhyankar, April Klein, Asad Kausar, Duarte Trigueiros, Efigénio Rebelo, Henk Berkman (Editor), Natalia Utrero, Richard Taffler, Rúben Peixinho, an anonymous referee and participants at the XVII Spanish Finance Forum, the 2011 Behavioural Finance and Economic Psychology Conference, the 5th Annual Meeting of the Portuguese Economic Journal and the 2011 European Financial Management Association Annual Conference. I acknowledge partial financial support from the School of Economics – University of the Algarve and the Fundação para a Ciência e Tecnologia, Portugal.
Bad news does not always travel fast: evidence from Chapter 11 bankruptcy filings
Version of Record online: 10 DEC 2013
© 2013 AFAANZ
Accounting & Finance
Volume 55, Issue 2, pages 415–442, June 2015
How to Cite
Coelho, L. M. S. (2015), Bad news does not always travel fast: evidence from Chapter 11 bankruptcy filings. Accounting & Finance, 55: 415–442. doi: 10.1111/acfi.12063
- Issue online: 8 JUN 2015
- Version of Record online: 10 DEC 2013
- Manuscript Accepted: 6 NOV 2013
- Manuscript Received: 3 APR 2012
- Chapter 11 bankruptcy;
- Market-pricing anomaly;
- Information diffusion rate
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.