An Empirical analysis of firms Emerging from SICA filings

Abstract

The legal and regulatory framework in India provide for reorganization of sick (defined as accumulated losses exceed net worth) but potentially viable firms. We examine stock returns and operating performance of the 101 firms that emerged as „no longer sick‟ from the proceedings during the period 1992 to 2006. Our short run as well as long run analysis of market performance using various expected return models and estimators show that market is not considering the event of from bankruptcy as a positive surprise. In contrast to the results from US market, our analysis of stock returns around the following four quarters‟ earnings announcements indicates that the market for these stocks is informationally efficient. It is evident from the analysis of operating performance that sample firms are neither making superior operating margin nor utilizing the assets efficiently after emerging from bankruptcy. Hence, our study raises doubts over the efficiency of proceedings and it may be possible that the proceedings may allow inefficient firms to reorganize and survive.