Abstract
Little is known about how the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) affects the business-bankruptcy landscape in the United States. This study addresses this gap in the literature by investigating the stock price dynamics of firms filing for Chapter 11 under both the 1978 Bankruptcy Act and the BAPCPA. Results show that, on average, shareholders of firms filing for Chapter 11 under the new Act lose significantly more both at and shortly after the event date than their 1978 counterparts do. Given the economic magnitude and robustness of these findings, this article’s empirical evidence suggests the market perceives the BAPCPA to be more creditor-friendly than its predecessor is.
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