Acquisitions of bankrupt assets

Buyers of bankrupt assets could be penalized because of uncertainty about the value of such assets given their poor performance, and the absence of a guarantee offered by bankrupt estates. On the other hand, they could be rewarded if imperfections in the market for bankrupt assets result in deep discounts. In this paper, we assess 314 acquisitions of bankrupt assets over the period 1985–2006. We find that firms that acquire bankrupt assets experience significant positive valuation effects, suggesting that the market for bankrupt assets is imperfect. Second, the valuation effects are especially favorable when the acquisition is only of selected assets, and when the buyer is in the same industry as the bankrupt firm. No evidence of long run abnormal returns (above and beyond the initial valuation effects) is found for firms that acquire bankrupt assets.