Market Behaviour around Bankruptcy Announcements: Evidence from the Australian Stock Exchange

18 Pages Posted: 11 Dec 2007

See all articles by Alex Frino

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Stewart Jones

University of Sydney – School of Business

Jin Boon Wong

University of Sydney - Discipline of Accounting

Abstract

The corporate distress literature to date has largely focused on the predictive power of accounting variables (Altman, 2001). Following previous literature, this study examines the relevance of abnormal stock returns in discriminating between failed and non-failed firms (e.g. Clark and Weinstein, 1983; Shumway, 2001). Our results confirm the findings of previous literature that investors in failed firms typically incur substantial negative stock returns leading up to failure announcements. However, in contrast to prior research we do not find evidence of an announcement effect (i.e. negative stock returns on the event day itself or the day preceding). We also document evidence that the bid-ask spreads of failed firms widen substantially up to 7 months prior to failure, indicating the likelihood of significant information asymmetries across investors in failed firms.

JEL Classification: G33, G12, D82, M41

Suggested Citation

Frino, Alex and Jones, Stewart and Wong, Jin Boon, Market Behaviour around Bankruptcy Announcements: Evidence from the Australian Stock Exchange. Accounting & Finance, Vol. 47, No. 4, pp. 713-730, December 2007. Available at SSRN: https://ssrn.com/abstract=1067083 or http://dx.doi.org/10.1111/j.1467-629X.2007.00222.x

Alex Frino (Contact Author)

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Stewart Jones

University of Sydney – School of Business ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Jin Boon Wong

University of Sydney - Discipline of Accounting

H69 Economics and Business Building
Sydney, NSW 2006
Australia

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