Stock Returns Behaviour and Liquidity around Corporate Bankruptcy During the Global Financial Crisis
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This paper examines abnormal stock return behaviour and liquidity of financially failed firms around the Global Financial Crisis (GFC) period. Using the intraday data for the Australian stock market, we show that both failed and matched non-failed firms incurred substantial losses during the GFC. Returns of both groups of firms significantly diverge as early as 254 trading days prior to the bankruptcy announcements. We find that even during the GFC when conditions in general are illiquid and investors demonstrate a loss of confidence, the market perceives firm characteristics, for example: corporate governance and management team, as key roles for the survival of firms and it has the ability to discriminate among failed and non-failed firms as firm bankruptcy approaches, by widening bid-ask spreads of failed firms. The results are useful in assessing the adequacy of existing regulations regarding corporate disclosure around bankruptcy announcements in mitigating negative effects for investors during financial crisis periods.
Abstract
This paper examines abnormal stock return behaviour and liquidity of financially failed firms around the Global Financial Crisis (GFC) period. Using the intraday data for the Australian stock market, we show that both failed and matched non-failed firms incurred substantial losses during the GFC. Returns of both groups of firms significantly diverge as early as 254 trading days prior to the bankruptcy announcements. We find that even during the GFC when conditions in general are illiquid and investors demonstrate a loss of confidence, the market perceives firm characteristics, for example: corporate governance and management team, as key roles for the survival of firms and it has the ability to discriminate among failed and non-failed firms as firm bankruptcy approaches, by widening bid-ask spreads of failed firms. The results are useful in assessing the adequacy of existing regulations regarding corporate disclosure around bankruptcy announcements in mitigating negative effects for investors during financial crisis periods.
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