Bankruptcy spillovers and stock price crash risk of non-bankrupt firms

Jagannath Mvk and Radha Mukesh Ladkani

Finance Research Letters, 2024, vol. 69, issue PB

Abstract: This paper examines whether corporate bankruptcies affect non-bankrupt firms' stock price crash risk. We observe that an upsurge in corporate bankruptcies adversely affects the crash risk of non-bankrupt firms in the industry. The increase in the crash risk following bankruptcy clustering in an industry is greater in financially constrained and financially distressed non-bankrupt firms. We also find that the creditor-in-control bankruptcy regime moderates the adverse effects of bankruptcy spillovers on the crash risk of non-bankrupt firms. Our results are robust to endogeneity tests (using GMM estimators) and tests that exclude industry downturns and macroeconomic shocks.

Keywords: Stock price crash risk; Bankruptcy spillover; Creditor rights (search for similar items in EconPapers)
JEL-codes: G32 G33 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324011565

DOI: 10.1016/j.frl.2024.106127

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