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Market reactions to financial distress announcements: Does the market react differently to different outcomes?

Author

Listed:
  • Abd Halim Ahmad

    (Universiti Utara Malaysia)

  • Nur Adiana Hiau Abdullah

    (Universiti Utara Malaysia)

  • Kamarun Nisham Taufil Mohd

    (Universiti Utara Malaysia)

Abstract

We examine market reactions to the financial distress announcements of listed firms in Malaysia. The sample consists of 236 financially distressed companies between 2001 and 2014. We investigate whether the market differentiates between the subsequently re-emerged and subsequently delisted firms at the time of financial distress announcements. The results suggest that there is evidence of differing reactions to distress announcements according to firms' outcomes. These results suggest that, at the time of financial distress announcements, the capital market differentiates firms based on the expected outcomes of the distress, showing that the market has insights into the expected outcomes of the financial distress.

Suggested Citation

  • Abd Halim Ahmad & Nur Adiana Hiau Abdullah & Kamarun Nisham Taufil Mohd, 2016. "Market reactions to financial distress announcements: Does the market react differently to different outcomes?," Economics Bulletin, AccessEcon, vol. 36(2), pages 601-608.
    • Handle: RePEc:ebl:ecbull:eb-16-00249
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    References listed on IDEAS

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    7. repec:bla:jfinan:v:53:y:1998:i:3:p:1149-1163 is not listed on IDEAS
    8. Roszaini Haniffa & Mohammad Hudaib, 2006. "Corporate Governance Structure and Performance of Malaysian Listed Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7-8), pages 1034-1062.
    9. Chien-An Wang, 2012. "Determinants of the Choice of Formal Bankruptcy Procedure: An International Comparison of Reorganization and Liquidation," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(2), pages 4-28, March.
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    Cited by:

    1. Blazej Prusak & Marcin Potrykus, 2020. "Short-term Price Reaction to Involuntary Bankruptcies Filed in Bad Faith: Empirical Evidence from Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 873-889.
    2. Ahmad, Abd Halim, 2019. "What factors discriminate reorganized and delisted distressed firms: Evidence from Malaysia," Finance Research Letters, Elsevier, vol. 29(C), pages 50-56.
    3. Prusak Błażej & Potrykus Marcin, 2022. "Stock price reaction to an arrangement approval in restructuring proceedings – the case of Poland," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 58(3), pages 279-298, September.

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    More about this item

    Keywords

    Market reactions; Malaysia; event studies; market adjusted returns;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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