Abstract
This study aims to check market reaction to filing for bankruptcy and restructuring proceedings and to verify the short-term effect of a price reversal in the Polish market in the years 2004–2019. The research was conducted by dividing the analysed companies according to the procedure (bankruptcy and restructuring) and market (the main market and the NewConnect market). The research methodology used in the study is the event analysis method (AR, CAR, AAR and CAAR rates were used in the research), with a few statistical tests (T-test, Generalized rank Z Test, Generalized rank T-Test, Patell or Standardized Residual Test, Kolari and Pynnönen adjusted Patell or Standardized Residual Test). It was found that share prices in the Polish share market react quickly to public information about filing an application for bankruptcy or restructuring. For all analysed companies, the mean rate of return on the event day was equal to −14%, and on the next day, it was −3%. Regardless of the type of share market and the form of proceedings, the reversal effect was not confirmed in the short term. It was found that cumulative above-average rates of return fall more strongly for companies listed on the less liquid Newconnect market (−23.6%), and when information on the filing for bankruptcy proceedings is provided (−28.5%), as opposed to the main market (−19.1%) and restructuring proceedings (−17%). The cumulative average rate of return for all analysed companies in the research period (−2, +10 days) was equal to −20.6%.
Highlights
For many years, views on rationality and human imperfections in the investment process have clashed
It was found that cumulative above-average rates of return fall more strongly for companies listed on the less liquid Newconnect market (−23.6%), and when information on the filing for bankruptcy proceedings is provided (−28.5%), as opposed to the main market (−19.1%) and restructuring proceedings (−17%)
In 1970, Fama (1970) proposed an extended version of the market efficiency theory distinguishing three forms of it, i.e., weak, semi-strong and strong
Summary
Views on rationality and human imperfections in the investment process have clashed. Discussions are underway on the validity of the efficient market hypothesis and the adjustment of prices to emerging information (Fama 1965a, 1965b, 1970; Fama and Thaler 2016). This theory is most associated with Fama (1965a, 1965b, 1970). In 1970, Fama (1970) proposed an extended version of the market efficiency theory distinguishing three forms of it, i.e., weak (historical information is reflected in the price), semi-strong (both historical and publicly available information is reflected in the price) and strong (the price reflects all information, both publicly available and available to selected groups, e.g., investors, the management board). In individual periods and articles, the semi-strong form was shown (Prusak 2015, p. 64)
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