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The distressed securities market: The performance of stockholders and vulture investors
Abstract
The leveraged buyout boom of the 1980s has fuelled unprecedented defaults and significantly contributed to the growth of distressed securities market in the late 1980s and early 1990s. This dissertation evaluates the performance of two key players in the distressed securities market--the stockholders and the vulture investors. The high level of corporate bankruptcies have, in general, worked to the detriment of many stockholders and bondholders who have suffered significant losses by investing in these companies before they filed. At the same time, the existence of a substantial supply of distressed securities has created attractive investment opportunities. The distressed securities market has increasingly witnessed the active participation of vulture investors in the bankruptcy process. While the amount of capital managed by vulture investors continues to grow, we know surprisingly little about their performance. This dissertation contributes to the literature on risk and returns in the distressed securities market. It proceeds in two main parts: First, I present evidence on the wealth effects of bankruptcy on the pre-petition stockholders. Second, I analyze the performance of vulture investors that invest in the securities of distressed forms. The results indicate that, at least for the period and the firms studied, the shareholders suffered significant losses during the course of the bankruptcy proceedings. The average post-bankruptcy filing return for the shareholders in 154 firms was $-$69.78 percent. Indeed, in 93 of the 154 cases the shareholders receive no distribution at the consummation of the plan. The data on the performance of eight vulture funds supports its viability as stand-alone investments and as additions to traditional asset portfolios. Consistent with the literature on managed portfolios, the evidence for the persistence of performance among the vulture fund managers is weak at best.
Subject Area
Finance|Business community
Recommended Citation
Russel, Philip Samuel, "The distressed securities market: The performance of stockholders and vulture investors" (1996). Doctoral Dissertations Available from Proquest. AAI9639023.
https://scholarworks.umass.edu/dissertations/AAI9639023