Market Behavior of Institutional Investorsaround Bankruptcy Announcements

Authors

Alessandro Frino, Macquarie UniversityFollow
Stewart Jones, University of Sydney
Andrew Dr Andrew Lepone, Macquarie University
Jin Boon Wong, Macquarie University

RIS ID

117862

Publication Details

Frino, A., Jones, S., Lepone, A. & Wong, J. Boon. (2014). Market Behavior of Institutional Investorsaround Bankruptcy Announcements. Journal of Business Finance & Accounting, 41 (1 & 2), 270-295.

Abstract

This paper examines, using proprietary ASX data containing institutional holdings,if institutional investors exit en mass prior to announcements of financial distress. Evidenceindicates that while some institutional investors exit the stock, the withdrawal is gradual, com-mencing approximately 115 days prior to event. This is driven by active institutional investorsreacting to the release of the financially distressed companies' last publicly released financialreports. There is no significant decline in institutional holdings before announcements; mostinstitutional investors hold financially distressed shares through to failure. There is evidence thatthe lack of disclosure drives the increase in information asymmetry prior to company failure.