CFA Institute Research: A Cleaner Balance Sheet After Bankruptcy Restructuring Does Not Guarantee Higher Stock Returns

The CFA Institute research team analyzed a sample of 145 U.S. companies that underwent Chapter 11 bankruptcy restructuring between 2002 and 2016, finding that balance sheet and restructuring process variables explained only 2% to 4% of the variation in stock returns in the three years following restructuring, with no statistical significance. Industry differences had a far greater impact on returns than balance sheet quality: the materials industry outperformed the S&P 500 by an average of 55%, while the utilities industry underperformed by an average of 85%.