Bankruptcy announcements and the paper industry

Market analysts examined stock market reactions to bankruptcy announcements based on the abnormal return (AR) and cumulative abnormal return (CAR) of the filing firm, rival portfolio, and the supply chain portfolios to investigate the effect of bankruptcy announcements on market valuations of pulp and paper companies in the US. There were 15 bankruptcy events of publicly traded firms in the pulp and paper industry between 1990 and 2009. The results revealed that the average market capitalization of bankrupt firms dropped from US$0.11 million 250 days before bankruptcy announcement to US$0.07 million 50 days before the announcement. The empirical results for the mills sector indicated that shareholders suffered a 43.1% loss of wealth, along with a 20.3% loss in shareholders' wealth one day after the announcement. There were also 5.1% and 24.9% losses in shareholders' wealth one day before and one day after the announcement in the converted paper product sectors.