Industry structure and ripple effects of bankruptcy announcements

Tsz Wan Cheng, James E. McDonald

Research output: Journal article publicationJournal articleAcademic researchpeer-review

23 Citations (Scopus)

Abstract

The market structure of an industry plays an important role in determining the stock market performance of surviving firms during intra-industry bankruptcy announcements. On evaluating the announcement effects of a survivor sample from each of two industries with very different market structures, namely the airline industry and the railroad industry, we find that the airline sample received significant abnormal returns (positive ripple) while the railroad sample experienced significant abnormal losses (negative ripple). Furthermore, the differences of the abnormal returns from the two samples also are statistically significant. These findings demonstrate support for the market structure hypothesis (MSH), but cast doubt on the contagion effect hypothesis (CEH).
Original languageEnglish
Pages (from-to)783-807
Number of pages25
JournalFinancial Review
Volume31
Issue number4
DOIs
Publication statusPublished - 1 Jan 1996
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this