The Journal of Finance

Does the Bond Market Predict Bankruptcy Settlements?

Published: 07/01/1992   |   DOI: 10.1111/j.1540-6261.1992.tb04001.x

ALLAN C. EBERHART, RICHARD J. SWEENEY

This study shows the extent to which deviations from the absolute priority rule increase or decrease the bankruptcy emergence payoff to traded (i.e., usually junior claimants) bondholders. The data indicate that, on average, bondholders benefit, albeit slightly, from absolute priority rule (APR) violations. This paper also examines the degree to which the bond market, in the bankruptcy filing month, anticipates departures from the APR and other influences on the payoff to bondholders. In other words, we investigate the informational efficiency of the market for bankrupt bonds. Overall, despite the complex and lengthy nature of bankruptcy proceedings, the results support efficiency.

The Equity Performance of Firms Emerging from Bankruptcy

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00169

Allan C. Eberhart, Edward I. Altman, Reena Aggarwal

This study assesses the stock return performance of 131 firms emerging from Chapter 11. Using differing estimates of expected returns, we consistently find evidence of large, positive excess returns in 200 days of returns following emergence. We also examine the reaction of our sample firms' equity returns to their earnings announcements after emergence from Chapter 11. The positive and significant reactions suggest that our results are driven by the market's expectational errors, not mismeasurement of risk. The results provide an interesting contrast, but not a contradiction, to previous work that has documented poor operating performance for firms emerging from Chapter 11.

An Examination of Long‐Term Abnormal Stock Returns and Operating Performance Following R&D Increases

Published: 03/25/2004   |   DOI: 10.1111/j.1540-6261.2004.00644.x

Allan C. Eberhart, William F. Maxwell, Akhtar R. Siddique

We examine a sample of 8,313 cases, between 1951 and 2001, where firms unexpectedly increase their research and development (R&D) expenditures by a significant amount. We find consistent evidence of a misreaction, as manifested in the significantly positive abnormal stock returns that our sample firms' shareholders experience following these increases. We also find consistent evidence that our sample firms experience significantly positive long‐term abnormal operating performance following their R&D increases. Our findings suggest that R&D increases are beneficial investments, and that the market is slow to recognize the extent of this benefit (consistent with investor underreaction).

Security Pricing and Deviations from the Absolute Priority Rule in Bankruptcy Proceedings

Published: 12/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb03723.x

ALLAN C. EBERHART, WILLIAM T. MOORE, RODNEY L. ROENFELDT

Claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 Bankruptcy Reform Act. We measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents, on average, 7.6% of the total awarded to all claimants. Evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority, suggesting that deviations from the rule were expected by the equity markets.