Valuation Effects along the Technology Channel: Evidence from Corporate Bankruptcies

Abstract

We document the valuation effects of bankruptcy announcements through technological relatedness. The average value of firms that intensively cite the technologies of a bankrupt firm decreases by 1% around the time of the bankruptcy announcement. The effects are not attributable to other economic linkages such as industry, customer-supplier relationships, and strategic alliances. The effects are more pronounced if the bankruptcy filing is likely a result of aging technologies possessed by the filer and among related firms that have non-diversified technologies. Our results reveal technological relatedness as an important economic linkage and suggest that the valuation effects of bankruptcy extend beyond product markets.

Keywords: bankruptcy, distress, technology, innovation, economic linkage, spillover

JEL Classification: G33, G14, O33