New Equity Performance Following Chapter 11 Emergence

Abstract

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This body of research investigates how the performance of exchange-traded common equity from firms in Chapter 11 bankruptcy emergence compares with common stock from non-bankrupt competitors and recently public peers in short and long-term time horizons.<span style="mso-spacerun: yes;">  </span>Return data are gathered for a sample of sixteen financially restructured companies, each paired with two non-distressed industry competitors and one recently-public peer.<span style="mso-spacerun: yes;">  </span>Using the Capital Asset Pricing Model as a primary analytical tool, empirical tests show a positive correlation in equity returns among the samples of restructured and non-distressed market competitors and a stock underperformance from the sample of IPO competitors.<span style="mso-spacerun: yes;">  </span>These results suggest that markets are better at judging the value of post-Chapter 11 companies relative to newly public companies and refute the theory of IPO price momentum.</span></span></p>