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The authors would like to thank Wallace Davidson, Clifton Jones, David Brown, two anonymous referees, and participants at the 1993 FMA meeting for their helpful comments. We would also like to thank Khalid Soliman, Phoebe Venable, Jingfeng Zhang and Bernard Piper for their research assistance.
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Industry Structure and Ripple Effects of Bankruptcy Announcements
Article first published online: 9 MAR 2005
DOI: 10.1111/j.1540-6288.1996.tb00897.x
Additional Information
How to Cite
Cheng, L. T.W. and McDonald, J. E. (1996), Industry Structure and Ripple Effects of Bankruptcy Announcements. Financial Review, 31: 783–807. doi: 10.1111/j.1540-6288.1996.tb00897.x
Publication History
- Issue published online: 9 MAR 2005
- Article first published online: 9 MAR 2005
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Abstract
The market structure of an industry plays an important role in determining the stock market performance of surviving firms during intra-industry bankruptcy announcements. On evaluating the announcement effects of a survivor sample from each of two industries with very different market structures, namely the airline industry and the railroad industry, we find that the airline sample received significant abnormal returns (positive ripple) while the railroad sample experienced significant abnormal losses (negative ripple). Furthermore, the differences of the abnormal returns from the two samples also are statistically significant. These findings demonstrate support for the market structure hypothesis (MSH), but cast doubt on the contagion effect hypothesis (CEH).