The Information Content of Bankruptcy Filing on Securityholders of the Bankrupt Firm: An Empirical Investigation

Posted: 3 May 2000

See all articles by Sudip Datta

Sudip Datta

Wayne State University - Finance Department

Mai Iskandar-Datta

Wayne State University - Finance Department

Abstract

This paper captures the information content of bankruptcy filing announcements on stockholders and three different classes of debtholders using daily excess returns. Significant negative stock price reaction to the filing announcement is documented. More interestingly, the secured debtholders are unaffected by the announcement. However, the unsecured and the convertible debt classes exhibit significant adverse price reactions. During the event period, the secured debtholders gain significantly while all other classes experience substantial losses. Cross- sectional analysis reveals that the complexity of the reorganization process, the security of the debt issue, and to some degree the anticipation of the bankruptcy filing are important determinants of bond excess returns. It is also found that leverage plays a significant role in preserving firm value by forcing the firm to confront reorganization sooner.

JEL Classification: G33, G34

Suggested Citation

Datta, Sudip and Iskandar-Datta, Mai E., The Information Content of Bankruptcy Filing on Securityholders of the Bankrupt Firm: An Empirical Investigation. Available at SSRN: https://ssrn.com/abstract=5960

Sudip Datta (Contact Author)

Wayne State University - Finance Department ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
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(313) 577- 0408 (Phone)
(313) 577-0058 (Fax)

Mai E. Iskandar-Datta

Wayne State University - Finance Department ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
(313) 577-9509 (Phone)

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