Inter-industry financial contagion and reorganization filings
Authors: Li-Chiu Chi
Journal: Chia Da Management Review. Jun. 2013, 33(1): 37-63.
Keywords: Financial contagion; Inter-industry effect; Reorganization filing; Creditor bank
Abstract:
Corporate bankruptcy and reorganization are important issues in the areas of accounting, economics, and
finance, yet this subject has attracted far less attention in the literature. Given that existing studies in
this line of research focus primarily on the strategies, procedures, and costs of reorganization, or on its
economic impact on shareholders' value, this empirical study, being set out to examine the inter-industry
financial contagion effect of a debtor firm' s reorganization filing on the main creditor bank's shareholder
wealth, contributes to the scant but promising literature. Moreover, to enhance the usefulness of the
regression model, a set of predictor variables (such as bank diversification, debtor size, debtor age, and
debtor financial quality) is elaborately organized as per the features of banking sector. An underlying
analysis of the reorganization filing data in Taiwan suggests that main creditor banks experience weak but
significant negative announcement returns when their debtor firms file petitions for reorganization, which
proves the existence of inter-industry financial contagion in bankruptcy reorganization contexts, though such
an effect is limited and short-term.