The Aftermath of Chapter 11 Bankruptcy: A Comprehensive Analysis.DE

Finance scholars disagree on how real-world financial markets function. According to the traditional finance paradigm, market prices, on average, reflect fundamental value. In contrast, behavioural finance theory suggests that this may not be the case, as investors are not fully rational and arbitrage is both risky and costly. This book contributes to the debate by examining how the U.S. equity market responds to bankruptcy announcements-the most extreme events in the corporate domain. The findings can be summarized in three key points. First, on average, the market does not fully incorporate the impact of a bankruptcy announcement in a timely manner. Second, limits to arbitrage help explain why this pricing anomaly persists even in the long run. Finally, the specific reason for filing under Chapter 11 has a significant impact on how the market reacts to the announcement. This book will be of interest to academics in bankruptcy and behavioural finance, as well as to institutional and individual investors trading securities of bankrupt firms.