Does bankruptcy filing always mean contagion? Evidence from industry rivals

The main aim of the paper is to explore the intra-industry effects of a bankruptcy filing on the capital market and to analyse the predomination of either competitive or contagion effect. The article is based on the assumption that the bankruptcy filing of the company affects the stock returns of its industry competitors and that the competitive effect dominates. The event study method is employed to assess the effect on the valuation of announcing and non-announcing firms. The empirical study is conducted on the example of stock-listed companies in Poland, where bankruptcy proceedings are not aimed at preserving the firm in distress. Averaged results suggest that the bankruptcy filing has a positive short-term effect on the valuation of industry competitors in the sample, which indicates the competitive effect. However, looking at results broken down by industries there is no robust evidence of the effect. Only one sector experiences short-lived positive investors' reaction.