Market behaviour around bankruptcy announcements

Evidence from the Australian Stock Exchange

Alex Frino*, Stewart Jones, Jin Boon Wong

*Corresponding author for this work

Research output: Contribution to journalArticle

23 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)713-730
Number of pages18
JournalAccounting and Finance
Issue number4
Publication statusPublished - Dec 2007
Externally publishedYes

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