Premium
Industry Structure and Ripple Effects of Bankruptcy Announcements
Author(s) -
Cheng Louis T.W.,
McDonald James E.
Publication year - 1996
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1996.tb00897.x
Subject(s) - bankruptcy , ripple , sample (material) , business , contagion effect , stock (firearms) , large sample , monetary economics , stock market , economics , finance , financial crisis , engineering , mathematics , statistics , macroeconomics , voltage , biology , electrical engineering , mechanical engineering , paleontology , chemistry , chromatography , horse
The market structure of an industry plays an important role in determining the stock market performance of surviving firms during intra‐industry bankruptcy announcements. On evaluating the announcement effects of a survivor sample from each of two industries with very different market structures, namely the airline industry and the railroad industry, we find that the airline sample received significant abnormal returns (positive ripple) while the railroad sample experienced significant abnormal losses (negative ripple). Furthermore, the differences of the abnormal returns from the two samples also are statistically significant. These findings demonstrate support for the market structure hypothesis (MSH), but cast doubt on the contagion effect hypothesis (CEH).