The Journal of Finance

Postbankruptcy Performance and Management Turnover

Published: 03/01/1995   |   DOI: 10.1111/j.1540-6261.1995.tb05165.x

EDITH SHWALB HOTCHKISS

This article examines the performance of 197 public companies that emerged from Chapter 11. Over 40 percent of the sample firms continue to experience operating losses in the three years following bankruptcy; 32 percent reenter bankruptcy or privately restructure their debt. The continued involvement of prebankruptcy management in the restructuring process is strongly associated with poor post‐bankruptcy performance. The substantial number of firms emerging from Chapter 11 that are not viable or need further restructuring provides little evidence that the process effectively rehabilitates distressed firms and is consistent with the view that there are economically important biases toward continuation of unprofitable firms.

Does Shareholder Composition Matter? Evidence from the Market Reaction to Corporate Earnings Announcements

Published: 07/15/2003   |   DOI: 10.1111/1540-6261.00574

Edith S. Hotchkiss, Deon Strickland

We examine whether institutional ownership composition is related to parameters of the market reaction to negative earnings announcements. When firms report earnings below analysts' expectations, the stock price response is more negative for firms with higher levels of ownership by momentum or aggressive growth investors. There is no evidence, however, that these institutions cause an “overreaction” to earnings news. Ownership structure is also related to trading volume and to stock price volatility on days around earnings announcements. Our findings are consistent with the idea that the composition of institutional shareholders effects stock price behavior around the release of corporate information.

Do Buyouts (Still) Create Value?

Published: 03/21/2011   |   DOI: 10.1111/j.1540-6261.2010.01640.x

SHOURUN GUO, EDITH S. HOTCHKISS, WEIHONG SONG

We examine how leveraged buyouts from the most recent wave of public to private transactions created value. Buyouts completed between 1990 and 2006 are more conservatively priced and less levered than their predecessors from the 1980s. For deals with post‐buyout data available, median market‐ and risk‐adjusted returns to pre‐ (post‐) buyout capital invested are 72.5% (40.9%). In contrast, gains in operating performance are either comparable to or slightly exceed those observed for benchmark firms. Increases in industry valuation multiples and realized tax benefits from increasing leverage, while private, are each economically as important as operating gains in explaining realized returns.