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The influence of bankruptcy law on equity value of financially distressed firms: A European comparative analysis

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  • López Gutiérrez, Carlos
  • García Olalla, Myriam
  • Torre Olmo, Begoña

Abstract

The reaction of stock prices to bankruptcy filing has been frequently analysed in the financial literature. In this paper we adopt a different approach to that of traditional study, and endeavour to determine whether the reaction of markets is conditioned by the orientation of bankruptcy law. Our results lead us to conclude that it is actually the type of bankruptcy law that conditions the valuation of firm's stocks. We have also found that the drop in share value is greater in creditor-oriented systems, while the negative returns are lower in debtor-oriented systems.

Suggested Citation

  • López Gutiérrez, Carlos & García Olalla, Myriam & Torre Olmo, Begoña, 2009. "The influence of bankruptcy law on equity value of financially distressed firms: A European comparative analysis," International Review of Law and Economics, Elsevier, vol. 29(3), pages 229-243, September.
    • Handle: RePEc:eee:irlaec:v:29:y:2009:i:3:p:229-243
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