THE EFFECT ON INTRA-INDUSTRY RIVALS WHEN FIRMS EMERGE FROM AND REFILE FOR CHAPTER 11 BANKRUPTCIES

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Abstract

We examine the intra-industry credit contagion effect when firms emerge from and refile for Chapter11 bankruptcies. We use the industry competitors‟ daily credit default swap (CDS) spreads to measure the contagion effects. We find that the firm‟s emergence from bankruptcy protection favorably affects the creditworthiness of market leaders. One possible interpretation of the result is that industry leaders could be less susceptible to the competitive challenges induced by the reinvigorated firms from bankruptcies. In addition, the markets may interpret such events positively since healthy competitors can boost and benefit the prospects of industry. Further, we find that Chapter 11 bankruptcy refilings also generate a favorable contagion effect. Apparently, the refiling firm‟s industry peers may benefit from the financial difficulty of the refiling firms.

Keywords: Credit Contagion Effect, Chapter 11 Bankruptcy

How to cite this paper: Chang, J.-R., Kuo, C.-S., & Tseng, Y.-C. (2010). The effect on intra-industry rivals when firms emerge from and refile for chapter 11 bankruptcies. Corporate Ownership & Control, 8(1-3), 402-414. https://doi.org/10.22495/cocv8i1c3p7