Stock Return Response to Competitor Bankruptcy: Perspective of
Antitakeover Protection
Huimin Chung
Graduate Institute of Finance, National Chiao Tung University
1001 University Road, Hsinchu, 300, Taiwan ROC
chunghui@mail.nctu.edu.tw
Ying-Sui Yang
Graduate Institute of Finance, National Chiao Tung University
1001 University Road, Hsinchu, 300, Taiwan ROC
eephone@hotmail.com
Chih-Liang Liu
Department of Finance, National Yunlin University of Science and Technology
123, University Rd. Sec. 3, Douliou, Yunlin 64002, Taiwan ROC
chlliu@yuntech.edu.tw
ABSTRACT
We investigate the stock return response to bankruptcy announcements of competing
firms by examining the relationship between the level of antitakeover provisions and
the cumulative abnormal return when another firm within the same industry is faced
with bailout problems. We posit that firms with good corporate governance would take
fewer antitakeover provisions and benefit from higher abnormal returns when industry
rivals go bankrupt. In addition, we find that the positive stock return response to
bankruptcy announcements is more profound after the Sarbanes-Oxley Act.
Keywords:

Corporate governance; Takeover provisions; Bankruptcy
announcement effect; Contagion effect; Competitive effect.
Corresponding Author. We would like to gratefully acknowledge the financial support provided by
the MoE ATU Plan of the National Chiao Tung University.
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