Market Behavior of Institutional Investors Around Bankruptcy Announcements

26 Pages Posted: 25 Feb 2014

See all articles by Alex Frino

Alex Frino

Macquarie University

Stewart Jones

University of Sydney – School of Business

Andrew Lepone

University of Sydney; Financial Research Network (FIRN)

Jin Boon Wong

University of Sydney - Discipline of Accounting

Date Written: January/February 2014

Abstract

This paper examines, using proprietary ASX data containing institutional holdings, if institutional investors exit en mass prior to announcements of financial distress. Evidence indicates that while some institutional investors exit the stock, the withdrawal is gradual, commencing approximately 115 days prior to event. This is driven by active institutional investors reacting to the release of the financially distressed companies’ last publicly released financial reports. There is no significant decline in institutional holdings before announcements; most institutional investors hold financially distressed shares through to failure. There is evidence that the lack of disclosure drives the increase in information asymmetry prior to company failure.

Keywords: bankruptcy, financial distress, institutional investors, information asymmetry, market behavior

Suggested Citation

Frino, Alex and Jones, Stewart and Lepone, Andrew and Wong, Jin Boon, Market Behavior of Institutional Investors Around Bankruptcy Announcements (January/February 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 1-2, pp. 270-295, 2014. Available at SSRN: https://ssrn.com/abstract=2400803 or http://dx.doi.org/10.1111/jbfa.12058

Alex Frino

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Stewart Jones

University of Sydney – School of Business ( email )

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

Andrew Lepone

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC
Australia

Financial Research Network (FIRN)

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

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

Jin Boon Wong

University of Sydney - Discipline of Accounting

H69 Economics and Business Building
Sydney, NSW 2006
Australia

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