No longer sick: what does it convey? An empirical analysis of post‐bankruptcy performance

Abstract

Purpose – The purpose of this paper is to empirically investigate the stock return and operating performance of the firms which emerged from bankruptcy during 1992‐2006 in India.Design/methodology/approach – The paper uses single factor model and matching firm approach to assess the stock return performance. It employs the level as well as change expectation models to examine the operating performance.Findings – The paper shows that the sample firms, after emerging from bankruptcy, report declining stock return as well as operating performance.Practical implications – Findings of the study raise doubts over the efficiency of Indian corporate bankruptcy reorganizing mechanism.Originality/value – Apparently, no previous study examined the post‐bankruptcy performance of the firms, particularly in the context of emerging markets, which are plagued with the principal agent problems aggravated by owner managers. Given the potential vulnerability of the bankruptcy process for the inefficient wealth transfers amo...