Return Performance Surrounding Reverse Stock Splits: Can Investors Profit?

Klein, April; Rosenfeld, Jim; Tucker, Jenny Wu

doi:10.2139/ssrn.679028

Cited by 9 publications

(1 citation statement)

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“…Moreover, financial ratios reflect more dimensions of financial performance, such as cost efficiency, gross profit margin, and overall financial performance. Accounting measures have been used in previous studies to identify changes in firm performance following leveraged buyouts, management buyouts, mergers, second-time initial public offerings (IPOs), reverse stock splits, and cross-country nonequity strategic alliances (Kaplan, 1989;DeLong and DeYoung, 2007;Chang, Chen, and Lai, 2008;Klein and Rosenfeld, 2008;Brown, Fee, and Thomas, 2009;Lian and Wang, 2009).…”

Section: E Measures Of Industry Financial Performancementioning

confidence: 99%

Emerging from Chapter 11 Bankruptcy: Is It Good News or Bad News for Industry Competitors?

Zhang

2010

Financial Management

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A firm under Chapter 11 bankruptcy protection may emerge from bankruptcy in a more advantageous competitive position within its industry to the detriment of their industry rivals. Using a sample of 264 firms that emerged from Chapter 11 bankruptcy during the period 1999‐2006, I find that its industry competitors demonstrate negative postemergence long‐term equity returns and deteriorating financial performance. Additional tests indicate that this outcome is less likely due to overall industry distress. Competitors tend to be more adversely affected if they are in more concentrated industries, if they have lower credit quality, when a more efficient firm emerges, and when the duration of bankruptcy is longer. This study suggests a need to reconsider Chapter 11's role in promoting competition and allocation of resources given its negative externalities on industry competitors.

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