Abstract
In this paper, we investigate whether a bankruptcy filing explains the earnings of the bankrupt firm's competitors. We examine contagion and competitive effects on competitors' earnings for a sample of 165 bankruptcies filed between 1991 and 1996. Our findings show that the competitors experience an increase in return on equity (ROE) in concentrated industries than in less concentrated industries, suggesting a competitive effect. In addition, the competitive effect is observed in industries with high leverage and multiple bankruptcy filings. Our data fail to provide support for the contagion effect of bankruptcy on competitors' earnings.
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