Are the Bankrupt Skies the Friendliest?
University of Virginia - Department of Economics; Centre for Economic Policy Research (CEPR)
University of Virginia - McIntire School
December 1, 2012
Volume 18, Issue 5, December 2012, Pages 1217–1231, Journal of Corporate Finance
We use data from the US airline industry to investigate whether firms that are under bankruptcy protection, as well as these firm's product market rivals, change the quality of the products they offer. We measure the quality of the services offered by a carrier using flight cancellations and delays, and the age of the aircraft used by the carrier. We find that delays and cancelations are less frequent during bankruptcy filings but return to their pre-bankruptcy levels once the bankrupt firm emerges from bankruptcy. We also find that firms use Chapter 11 filings to permanently reduce the age of their fleet. We do not find evidence of statistically and economically significant changes by the airline's competitors along any of the dimensions above.
Keywords: Bankruptcy, Chapter 11, Product market quality, Airline industry
JEL Classification: G33, L13, L93, K2
Date posted: October 30, 2009 ; Last revised: September 20, 2012