The purpose of this paper is to explore the influence of bankruptcies on the market share effects of rival firms in the airline industry.
Employing event study methodology, the authors examine the impact of bankruptcies on major and minor airlines by analyzing four different types of events: filing for bankruptcy by major carriers; coming out of bankruptcy by major carriers; shutdown by major carriers; and filing of bankruptcy by minor carriers.
Empirical results indicate that filing for bankruptcy by major carriers and shutdown by major carriers resulted in positive abnormal returns around the announcement dates for rival firms, while coming out of bankruptcy by major carriers resulted in negative impact. As expected, the last type of events involving filing for bankruptcy by minor carriers resulted in insignificant abnormal returns.
The results point to the importance of systematically incorporating bankruptcies by competitive firms in estimating and forecasting market demand. The results provide a diagnostic tool to evaluate what kind of contingencies necessitate planning for unexpected spikes in market share.
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