Firm Performance and Insider Trading: A Comparison Between Voluntary and Involuntary Bankruptcy Filings

We compare the financial performance and insider trading characteristics of firms finding for voluntary bankruptcy with firms that are petitioned into bankruptcy involuntarily by their creditors. We find that shareholders of firms filing for voluntary bankruptcy experience significantly greater losses around the bankruptcy announcement than shareholders of involuntary filers. We also find that insiders of firms filing voluntarily are net sellers of their firm's shares in the years leading up to bankruptcy, vs. net buying by insiders of involuntary filers. Moreover, firms filing voluntary bankruptcy successfully reorganize less frequently and liquidate more frequently titan firms that file involuntary bankruptcy. These findings are consistent with the idea that corporate insiders in firms filing for voluntary bankruptcy have reduced incentives to maximize shareholder welfare throughout the Chapter 11 process compared with insiders of firms tit at are petitioned into bankruptcy by their creditors.