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Market Behavior of Institutional Investors around Bankruptcy Announcements
Author(s) -
Frino Alex,
Jones Stewart,
Lepone Andrew,
Wong Jin Boon
Publication year - 2014
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12058
Subject(s) - institutional investor , bankruptcy , business , financial distress , event study , monetary economics , information asymmetry , financial system , stock (firearms) , finance , economics , corporate governance , mechanical engineering , paleontology , context (archaeology) , engineering , biology
This paper examines, using proprietary ASX data containing institutional holdings, if institutional investors exit en mass prior to announcements of financial distress. Evidence indicates that while some institutional investors exit the stock, the withdrawal is gradual, commencing approximately 115 days prior to event. This is driven by active institutional investors reacting to the release of the financially distressed companies’ last publicly released financial reports. There is no significant decline in institutional holdings before announcements; most institutional investors hold financially distressed shares through to failure. There is evidence that the lack of disclosure drives the increase in information asymmetry prior to company failure.