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International Journal of Management and Economics 2022; 58(3): 279–298
Błażej Prusak*, Marcin Potrykus
Stock price reaction to an arrangement
approval in restructuring proceedings –
the case of Poland
https://doi.org/10.2478/ijme-2022-0014
Received: April 14, 2022; accepted: July 27, 2022
Abstract: The study aims to empirically analyze the reaction of stock prices to the information about the
conclusion and acceptance of a debtor–creditor arrangement under restructuring proceedings of companies
listed on the stock exchange in Poland. The following main research hypothesis was verified: public
disclosure of information about an arrangement conclusion and acceptance in restructuring proceedings
results in above-average rates of return due to investments in the stocks of these entities in the short term.
Three events were assessed: the public disclosure of information about the conclusion of a debtor–creditor
arrangement (Event 1), its approval by a court (Event 2), and the decision becoming final (Event 3). The
research method applied was the event study. Event 1 and Event 3 leads to an above-average and statistically
significant increase in stock prices on the day of the event. In contrast, no statistically significant above-
average rates of return accompanied Event 2.
Keywords: event analysis, market efficiency, price reaction, restructuring proceedings
JEL classification codes: G11, G14
1 Introduction
Elon Musk’s recent statements about accepting Dogecoin and not accepting Bitcoin as a form of payment
for Tesla’s products have reverberated through capital markets. His statements resulted in a significant
change in the prices of these cryptocurrencies [Iyengar, 2021; Thorbecke, 2022]. This example shows that
the disclosure of certain information can materially affect the prices of financial instruments. It is not an
isolated case, and the number of events that impact the capital market returns studied by scholars continues
to grow [Binder, 1998; Corrado, 2011; Wang and Ngai, 2020]. The origins of event analysis date back to the
1930s [Sorokina et al., 2013], whereas advanced methodology for this form of study was proposed by Fama
et al. [1969] in an article entitled The Adjustment of Stock Prices to New Information, and it was further
developed by many researchers [Brown and Warner, 1980, 1985; Dyckman et al., 1984]. Apart from the price
reactions of different assets in capital markets to the events, the analysis also covers the events’ impact on
the volatility of the prices as well as their trading volume and liquidity [Yadav, 1992; Essaddam and Mnasri,
2015; Gurgul, 2020; Tweneboah-Koduah et al., 2020; Yue, 2021]. The studies examine the impact of positive,
negative, and false event announcements on the above-mentioned variables. Due to their large number, it is
Empirical Paper
*Corresponding author: Błażej Prusak, Faculty of Management and Economics, Gdańsk University of Technology, Gdańsk,
Poland. E-mail: blaprusa@pg.edu.pl;
ORCID: https://orcid.org/0000-0002-6526-0407
Marcin Potrykus, Faculty of Management and Economics, Gdańsk University of Technology, Gdańsk, Poland.
ORCID: https://orcid.org/0000-0002-4547-4555
Open Access. © Prusak and Potrykus, published by Sciendo.
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs . License.
280B. Prusak and M. Potrykus
difficult to specify all the events analyzed so far. They include, for example, fake news [Clarke et al., 2019],
publishing information regarding stock exchange recommendations [Liu et al., 1990], mergers [Keown and
Pinkerton, 1981; Rosen, 2006], profits [De Bondt, 2000, pp. 71–81], stock splits [Gulen and Hwang, 2012],
planned dividend payments [Michaely et al., 1995], corporate strategy, customers and partners, products
and services, management changes, legal developments [Neuhierl et al., 2013], unexpected deaths of senior
corporate executives [Johnson et al., 1985], corporate governance [Brogi and Lagasio, 2018], frauds [Sharma
and Verma, 2020], R&D process [Perez-Rodriguez and Valcarcel, 2012], daily coronavirus confirmed cases
and deaths [Ashraf, 2020], corporate social responsibility (CSR) [Pérez et al., 2020], voluntary integrated
report publication [Nakajima and Inaba, 2021], and information security events [Ali et al., 2021], as well as
changes in environmental policies and regulations in the US during Donald Trump’s presidency [Nerger
et al., 2021], coronavirus outbreak [Liu et al., 2020; Mirza et al., 2020; Singh et al., 2020], terrorist attacks
[Tahir et al., 2020], and environmental pollution [Bouzzine, 2021]. The impact of these events was examined
at different time intervals, i.e., seconds, minutes, days, months, or years [Kothari and Warner, 2007; Dutta
and Dutta, 2015; Mazza, 2015; Lalwani et al., 2019].
In addition to the above-mentioned circumstances, significant events, which directly affect many
companies and impact their results, are related to bankruptcy and restructuring proceedings. Within these
proceedings, it is possible to identify many key moments and communications about them that significantly
impact the value of companies. These include, for example, filing for the initiation of bankruptcy or
restructuring proceedings, dismissal of the bankruptcy or restructuring application by a court, concluding
a debtor–creditor arrangement under restructuring proceedings, executing an arrangement, etc. The
literature on the subject includes analyses of price reactions only to some of the above events and only to
a limited extent. However, no research shows whether and to what extent concluding a debtor–creditor
arrangement affects the rate of return on stocks of public companies. It is worth mentioning here that the
implementation of the agreement requires the realization of three minor stages, namely: conclusion of a
debtor–creditor arrangement, court approval of the arrangement, and arrangement approval becoming
final. These events are a crucial part of the restructuring process, and they are necessary but not sufficient to
restructure the company successfully. In our opinion, the lack of studies on this topic constitutes a research
gap that this paper fills. The proposed research objective is to identify stock price reactions to the conclusion
and acceptance of an arrangement under restructuring proceedings of companies listed on the Polish stock
market. Companies listed on the main market of the Warsaw Stock Exchange and on Newconnect, which
is a market for smaller entities, were included. Due to the lack of access to a wider database, the research
was limited to companies listed on the stock exchange in Poland. However, in terms of capitalization, the
Polish capital market is one of the largest after Russia among the post-communist countries in Central
and Eastern Europe [FESE, 2021]. Because entering into an arrangement in restructuring proceedings is
positive information for investors, the following main research hypothesis was proposed: public disclosure
of information about the conclusion and acceptance of an arrangement in restructuring proceedings results in
above-average rates of return due to investments in the stocks of these entities in the short term. The studies
were conducted using daily time intervals. The research method used was event studies, and information
about the arrangements was obtained from Electronic System for Information Transmission (ESPI) between
October 2004 and June 2021.
Besides the introduction, the paper structure is as follows. The second section outlines the theoretical
background. It presents the directions of bankruptcy and restructuring law changes in Poland and the EU.
Moreover, it contains information on regulations and statistics concerning bankruptcy and restructuring
in Poland and depicts concluding and accepting an arrangement. The key role of an arrangement between
a debtor and creditors in the successful restructuring of a company is underlined, which can significantly
impact the business value. It also presents the results of previous event studies concerning bankruptcy
and restructuring processes in Poland and abroad. The third section presents the methodology with
particular reference to the description of the event analysis method used in the study. The fourth section
presents the research results. The final section discusses the findings, limitations, and implications of
the research.
Polish stock price reactions to debt restructuring arrangements 281
2 Restructuring proceedings in Poland and literature on
restructuring effects
In the 21st century, EU countries, among others, launched initiatives to implement the second chance
policy. These initiatives are described in many documents and legal acts, among which we can mention:
Overcoming the Stigma of Business Failure – for a Second Chance Policy. Implementing the Lisbon Partnership
for Growth and Jobs [2007]; Think Small First. A Small Business Act for Europe [2008]; Business Dynamics:
Start‐ups, Business Transfers and Bankruptcy. The Economic Impact of Legal and Administrative Procedures
for Licensing, Business Transfers and Bankruptcy on Entrepreneurship in Europe [2011]; Report of the Expert
Group: A Second Chance for Entrepreneurs: Prevention of Bankruptcy, Simplification of Bankruptcy Procedures
and Support for a Fresh Start [2011]; Commission Recommendation of 12 March 2014 on a New Approach to
Business Failure and Insolvency [2014]; Entrepreneurship 2020. Action Plan. Reigniting the Entrepreneurial
Spirit in Europe [2013]. A key role in carrying out this policy is played by regulations and institutions that
impact the effectiveness of business restructuring. Initiating corrective actions in the early stage of a crisis
and allowing a continuation of business activity rather than its closure often contributes to maintaining
jobs and has a positive impact on the economy [Falke, 2002; Hausemer et al., 2016; Kilborn, 2016,
p. 583; Graham et al., 2019]. It also improves the financial health of companies and increases their value.
However, this does not mean that every distressed company should be restructured. At the initial stage of
proceedings, it is important to separate those entities that can improve their financial condition from those
that do not show such promise. In the latter case, it is advisable to liquidate them. In order to improve
actions for the implementation of the second chance policy in the EU countries, including among others,
improvement of the effectiveness of restructuring proceedings, Directive (EU) 2019/1023 of the European
Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt
and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring,
insolvency and discharge of debt was adopted. Despite steps taken to harmonize legislation, regulations
on bankruptcy and restructuring are not uniform in the EU Member States and other countries [Newman,
2021]. In some states, provisions concerning bankruptcy and restructuring proceedings constitute a
single legal act, while in others, they are regulated in two different ones. In addition, there are several
recovery solutions adjusted to the requirements of individual countries. Hence, it can be seen that specific
regulations are proposed for smaller and larger companies and different types of business entities (e.g.,
banks, insurers), depending on the financial condition of the entity. These regulations also differ, inter alia,
in areas such as seniority of claims, voting rules on the agreement, the required majority for approval of the
agreement, the appointment of creditors’ committee, cramdown policy, new financing rules, the position
of management, personal liability of directors, and release from debts [Clifford Chance, 2019; Restructuring
& Insolvency/Chapters, 2022].
In Poland, several types of restructuring proceedings can be distinguished depending on the level
of court involvement and complexity, among other things. Thus, there are proceedings where the entire
procedure takes place out of court and those where the court’s influence on the course of the recovery
procedure varies – from full control to the court’s activity limited to approving an arrangement, stating
its execution or discontinuance [McCormack et al., 2016; Morawska et al., 2020]. After World War II, when
Poland had a planned economy, the Polish bankruptcy and composition law was practically dead. However,
formally relevant regulations existed from 1934, i.e., the Regulation of the President of the Republic of Poland
of 24 October 1934a, Bankruptcy Law and the Regulation of the President of the Republic of Poland of 24 October
1934b, Law on Composition Proceedings. Only after the initiation of economic transformation, starting from
1990, did bankruptcy and composition proceedings begin to be conducted under the 1934 regulations.
These regulations applied until 2003, when a new bankruptcy and reorganization law was introduced
[Bankruptcy and Reorganisation Act of 28 February 2003]. This law, with amendments, continued to be
in force until the end of 2015. It provided for three basic proceedings, i.e. liquidation, composition, and
recovery. The first two were intended for insolvent entities and the last for entities at risk of insolvency. After
it was in force for several years, it turned out that this law did not work in practice, i.e., the proceedings were
282B. Prusak and M. Potrykus
very long and costly and the number of arrangements small. Recovery proceedings were rare. Hence, a new
restructuring law [Restructuring Act of 15 May 2015] came into force from the beginning of 2016. Since then,
bankruptcy proceedings have been governed by the above-mentioned 2003 act, while the restructuring
law provides for several procedures of a corrective nature that differ in terms of court intervention and the
degree of formalization.
As shown in Figure 1, the grounds for initiating a recovery procedure are insolvency or the risk of
insolvency. Proceedings for the approval of an arrangement are among the least formalized. Most actions
take place out of court. The debtor negotiates independently with their creditors to conclude an arrangement.
The court only decides whether to approve such an arrangement. Other proceedings take place with greater
court involvement. Accelerated composition proceedings are less formal than composition proceedings.
Moreover, the latter concern a larger number of disputed receivables. Of all restructuring proceedings,
recovery proceedings are among the most complex and involve the greatest influence of the court and the
appointed supervisor on its course. However, they make it possible to restructure the debtor’s company using
more advanced restructuring measures than other proceedings. It also guarantees the greatest protection
from creditors. During the COVID-19 pandemic, an additional temporary solution was introduced in the form
of simplified arrangement approval proceedings (simplified restructuring proceedings), the provisions of
which were in force until November 30, 2021 [Act of 19 June 2020 on Subsidisation of Interest on Bank Loans
Granted to Entities Affected by COVID-19 and Simplified Arrangement Approval Proceedings Due to COVID-
19, as amended]. These proceedings were conducted almost entirely out of court, with a 4-month maximum
time limit for an arrangement.
One of the key steps in all restructuring proceedings is concluding a debtor–creditor arrangement and
its acceptance by a court. Figure 2 shows the main stages of successful composition proceedings.
In the first stage, arrangement proposals are presented, and negotiations are held between the debtor
and the creditors. Arrangement approval requires obtaining a legal majority as measured by both the
Figure 1. Types of restructuring proceedings in Polish law.
Source: Own elaboration.
Figure 2. Stages of successful composition proceedings.
Source: Own elaboration.
Polish stock price reactions to debt restructuring arrangements 283
number of votes and the value of the receivables. After the arrangement is concluded, the participants in
the composition proceedings may report objections. After considering these objections and verifying the
legality of the arrangement, the court approves or rejects it. The court’s decision may be appealed. The
final element required is the decision on the arrangement approval to become final. In the next stages,
the company takes corrective actions and, at the same time, implements the provisions of the composition
agreement. Successful proceedings end with the execution of the arrangement. If there are any problems
with implementing the arrangement, the law provides a procedure for amending it. If the arrangement
amendment is not effected or the circumstances indicate that it will not be executed, the arrangement is
revoked and expires. Such situations often result in a declaration of bankruptcy.
One of the main problems in Poland was the relatively small share of insolvent companies that used
legal bankruptcy and reorganization procedures, including a very low share of restructuring companies in
relation to liquidated units. As shown in Table 1, it was not until the introduction of the new restructuring
law and the simplified restructuring proceedings due to the COVID-19 pandemic that this trend was
reversed. However, given the new law has been in force for a short time, it is difficult to accurately assess
these changes for now, as many of the existing composition procedures have not been successful, and a
large portion of the procedures is not finished yet [Zaremba, 2020].
There has not been much research using event analysis that would address bankruptcy and restructuring
processes in the existing literature on the subject. For example, Clark and Weinstein [1983] and Schatzberg
and Reiber [1992] reported a short-term stock price reversal effect following the publication of information
about filing for the initiation of recovery proceedings in the US, i.e., significant drops in prices over the filing
period were followed by an abnormal return rate. A similar effect was demonstrated by Datta and Iskander-
Datta [1995], and Dawkins et al. [2007]. Coelho and Taffler [2008] studied the long-term impact of filing for
a recovery procedure in the US. It turned out that 12 months later, the average abnormal return (AAR) rate
was negative. Rose-Green and Dawkins [2000] revealed that companies initiating liquidation bankruptcy
proceedings achieved larger price drops than companies filing for recovery proceedings. Meanwhile, Bonnier
and Bruner [1989] showed that providing information about management board changes in distressed
companies generates short-term positive price changes. Moreover, Chen and Church [1996] concluded that
companies applying the going concern assumption achieved less negative returns than companies not
doing so when the bankruptcy filing was made public. In addition to the above studies on listed companies
in the US, analyses on the Malaysian and Polish markets were also conducted. In Malaysia, companies
reporting bankruptcy generated a negative abnormal return in the short term. Furthermore, re-emerged
firms experienced significantly less negative abnormal returns compared to delisted ones [Ahmad et al.,
2016]. Similar observations were true to the Polish capital market – stock prices reacted negatively in
the short term to the information about filing for liquidation bankruptcy or restructuring. However, the
reaction was more severe in the case of companies filing for liquidation bankruptcy. It is worth mentioning
that higher negative above-average returns were reported for companies listed on the less liquid stock
market [Prusak and Potrykus, 2021a]. Another study concerned the reaction of stock prices to involuntary
bankruptcies filed by creditors in bad faith. The study revealed that information about these applications
did not generate negative above-average returns in the short term [Prusak and Potrykus, 2020].
The literature analysis shows that there is little research on price reactions to bankruptcy and
restructuring processes. Most studies were devoted to analyzing the price reactions to the public disclosure
of information about filing bankruptcy or restructuring. No research on stock price reactions to the news of
arrangement that accounts for the success of the corporate recovery process has been carried out so far. The
conclusion of an agreement between the debtor and the creditors is necessary for a successful restructuring.
However, an arrangement often involves parties with different objectives and expectations, and diverse
access to information. In addition, in many legal orders, we have to deal with so-called privileged claims and
claims secured by the debtor’s assets, making it even more challenging to reach a compromise [McCormack,
2017]. In the literature, this problem is extensively presented within the framework of contract theory, which
examines the conclusion of formal and informal contracts by parties representing diverse interests and
with different levels of information [Jackson, 1982; Schwartz, 1998; von Thadden et al., 2010; Lipson, 2016;
Adler and Triantis, 2017; Silva and Saito, 2018; Skeel, 2020; Warren et al., 2021]. Furthermore, the creditors’
284B. Prusak and M. Potrykus
Table 1. Bankruptcies and restructurings in Poland in 2005–2021
Bankruptcy (liquidation)
proceedings (business activities)
Bankruptcy proceedings with
the possibility to make an
arrangement (in accordance
with the Bankruptcy and
Reorganisation Act of February
)
n/a n/a - - - - -
Restructuring proceedings
(in force under the Restructuring
Act of May )
- - - - - - - - - - -
Simplified restructuring
proceedings (out of court, in force
until November , )
- - - - - - - - - - - - - - -
Source: Coface Reports [2009, 2013, 2019, 2021a, b, 2022].
Polish stock price reactions to debt restructuring arrangements 285
vote on the arrangement is preceded by many analyses and valuations included in the restructuring plan.
An agreement between the various creditor groups and the debtor on the shape of the arrangement may
constitute positive information for investors [Chen et al., 1995; Garrido et al., 2021, pp. 16–25]. Consequently,
on the grounds of signaling theory [Yasar et al., 2020], this positive information should therefore translate
into higher stock prices in the short term. This assumption forms the basis for the hypotheses used in this
study, which have been presented below. In the longer term, stock valuation is determined by a number of
factors affecting the degree of implementation of the restructuring plan, which provides a benchmark in
evaluating the company’s operations and valuation.
Given that, the following main research hypothesis was proposed: public disclosure of the information
about an arrangement conclusion and approval in restructuring proceedings results in above-average rates
of return on stocks in the short term. As presented in Figure 2, concluding and approving a debtor–creditor
arrangement consists of several steps. Successful completion of each stage involves positive information for
the restructured entity. With this in mind, the following auxiliary hypotheses were proposed to verify the
main hypothesis:
H1P: Public disclosure of an arrangement conclusion in restructuring proceedings results in above-average stock return rates
(Event No. 1).
H2P: Public disclosure of the court approval of an arrangement in restructuring proceedings results in above-average stock
return rates (Event No. 2).
H3P: Public disclosure of an arrangement approval in restructuring proceedings becoming final results in above-average
stock return rates (Event No. 3).
3 Empirical research
3.1 Methodology
In the study, we only analyzed the short-term impact of the event on investment returns. Therefore, we
did not consider firm-specific characteristics concerning at least their financial condition. This is because:
(1) these characteristics could influence the return on investment, but over a longer period; (2) research
conducted so far shows little or no difference in financial condition between companies that have and have
not concluded an arrangement [Zaremba, 2020; Prusak and Galiński, 2021].
Due to the nature of the study and the use of event analysis, the examination was based on the
companies listed on the stock exchange. This is because only these companies provide information about
their stock prices. Taking into account data access, the study was limited to companies listed on the main
market of Warsaw Stock Exchange and Newconnect. The information about arrangements was obtained
from ESPI. In the first stage, over 390,000 current reports on the Polish Press Agency (PAP) websites from
October 2004 to June 2021 were analyzed to select companies that initiated restructuring proceedings and
concluded an arrangement with creditors. Based on the data analysis, all companies that entered into an
arrangement in the indicated period were selected for further examination. Subsequently, the following
data were considered: date of court’s decision on arrangement or restructuring proceedings, date of public
disclosure of information about the conclusion of a debtor–creditor arrangement, date of public disclosure
of information about the court’s approval of the arrangement, and date of public disclosure of information
about the arrangement approval decision becoming final. It is worth mentioning that not all arrangements
received court approval, but some approval decisions did not become final. In several cases, there are no
data. Hence, the number of observations for the three study groups is not the same. The final number of the
companies studied in three separate groups is shown in Table 2.
In addition to arrangements not approved by a court or decisions not becoming final, the final study
sample was also limited by the lack of price changes within the adopted estimation window for five
companies (see Appendix 1). Apart from these cases, the final study sample contains all companies quoted
286B. Prusak and M. Potrykus
on Warsaw Stock Exchange (WSE) that underwent the analyzed procedure. The full list of companies and
the assumed event dates for the three separate events and the start as well as the end dates of the estimation
window are shown in Appendix 1.
Since information on the studied events could have been reported outside an active trading session,
i.e., after the closure of a trading session or on a day free from trading sessions, the date of the event was
assumed to be the date of the next trading session. All such cases for which the event date differed from
the public disclosure date are indicated in bold in Appendix 1. The public disclosure of information about a
given event, depending on its occurrence during an active trading session or outside it, was also the basis
for grouping the studied sample into two subsamples, because—as demonstrated in previous studies—the
information appearing during an active trading session has a different impact on the trading than in cases
when the trading session is not active [Prusak and Potrykus, 2021b]. The sample also includes one company
(see Appendix 1) that went through the entire procedure twice – first in 2011 and then in 2018.
To better illustrate the data, basic descriptive statistics were also determined for the studied events
based on the number of days between:
• creditors’approvalofthearrangementandthecourtapprovalofthearrangement(Situation1);
• creditors’approvalofthearrangementandthedecisionbecomingfinal(Situation2);and
• courtapprovalofthearrangementandthedecisionbecomingfinal(Situation3).
The results are shown in Table 3.
Based on Table 3, it can be observed that the average time between the public disclosure of information
about the creditors’ approval of the arrangement and the court approval of the arrangement exceeds 41
days, with the most common time being 14 days. Moreover, for half of the cases studied, this time was less
than 23 days. However, the longest gap between these two events was as long as 210 days. On average, the
time between the public disclosure of the information about the creditors’ approval of the arrangement
and the decision becoming final exceeded 132 days, with a standard deviation of nearly 90 days. For half
of the cases, the time was less than 100.5 days. On average, there were nearly 91 days, with a standard
Table 2. Number of observations by three study groups
Arrangements concluded
(Event No. )
Arrangements approved by a court
(Event No. )
Arrangements becoming final
(Event No. )
Population of the
companies under study
Final study sample
Source: Own elaboration.
Table 3. Descriptive statistics for the number of days from the public disclosure of information about the studied events
No. Descriptive statistics Situation Situation Situation
Arithmetic mean . . .
Median . . .
Mode . . .
Standard deviation . . .
Kurtosis . . .
Skewness . . .
Range . . .
Minimum . . .
Maximum . . .
Source: Own elaboration.
Polish stock price reactions to debt restructuring arrangements 287
deviation of 61.6 days, between the public disclosure of the court approval of the arrangement and the
decision becoming final. This was less than 76 days for half of the cases, but the maximum time between
these two events was 251 days, and the minimum was only 13 days. The above data show that the whole
procedure can be shortened considerably on the part of the court.
It should also be noted that the analysis used daily time intervals. The event window under study was
from 1 day before the event to 4 days after the event occurrence. Notably, a common estimation period was
used for all three events to determine the market model parameters used to calculate above-average rates of
return. We used the market model according to Sharpe [1963], and Corrado [2011]. The chosen market model
was also strengthened by the conclusions of Castro-Iragorri [2019]. One such common estimation window
allowed us to exclude disturbance events that result from the very close proximity of the examined events. A
graphic representation of the course of the conducted study is given in Figure 3. The length of the estimation
window was applied for 100 data points, with the last observation being 5 days before the public disclosure
of the conclusion of a debtor–creditor arrangement. For that reason, in Figure 3 the estimation window,
“–5” can be found at the ending point for it. And at the beginning point, the estimation window is marked
with “–105” according to the length of the estimation window equal to 100 observations.
The WIG index (Warsaw Stock Exchange Index) was employed as a benchmark. Logarithmic rates of
return were applied for all calculations because they generate better test specifications than tests conducted
based on arithmetic returns [Corrado and Truong, 2008]. The calculations were performed in R software [R
Core Team, 2020] using the EventStudy package [Schimmer et al., 2015]. In addition, the adjusted Patell test
was utilized to assess the statistical significance of the results; it was carried out following the methodology
in Kolari and Pynnönen [2010]. The study determined the AAR and cumulative average abnormal return
(CAAR) rates for the three studied events in all companies, breaking companies into subsamples by the time
the event was reported (during the trading session or outside the trading session). We verified our three
hypotheses based on the AAR value and, using the available data corresponding to the event day AAR(0)
and additionally taking into account the CAAR, performed an adjusted Patell test calculated specifically for
this value. The CAAR rate is used for checking the durability (if it exists) of the calculated positive abnormal
rate of returns in a short period (event window). Using CAAR we will also be able to verify, in a case of
a negative abnormal rate of return, if the reversal effect exists for Polish companies and is statistically
event dat e no. 1
(acceptance of the
arrangement by
creditors)
‒5
(according to test
window no. 1)
‒105
(according to test
window no. 1)
�me
(days
)
event dat e no. 2
(court's de cision to
approve the
arrangement)
event
window
no. 2
event dat e no. 3
(final court j udgment
accep�ng the
arrangement)
0‒1 4
event
window
no. 3
0‒1 4
0‒1
event
window
no. 1
es�ma�on
window (one ,
common for all
three even ts)
4
Figure 3. Graphic representation of the conducted event analysis.
Source: Own elaboration.
288B. Prusak and M. Potrykus
significant, as was discussed in this paper in a theoretical part for US companies, and as corroborated in
the studies of Clark and Weinstein [1983], Schatzberg and Reiber [1992], Datta and Iskander-Datta [1995],
and Dawkins et al. [2007].
3.2 Results
Table 4 shows the results for all three events under study. For each event, the following rows show the
AAR for each day of the event window, the adjusted Patell Z statistic test, and the p-value. In addition,
in the case of statistical significance of at least 0.1, the symbol “*” was used, and for 0.05 and 0.01 levels
of significance, “**” and “***” were used, respectively. For each of the three events, in addition to the
results of the entire study sample (denoted by the ALL grouping variable), the results were also presented
in an identical arrangement by events that occurred during the active trading session (indicated by the IN
grouping variable) and outside the active trading session (denoted by the OUTSIDE grouping variable). The
sample size of each study was presented next to the name of the grouping variable by giving its “N” value.
Table 4. Event analysis results, including AAR values
Event No. Grouping variable/test statistics AAR (−) AAR () AAR () AAR () AAR () AAR ()
ALL (N = ) AAR −.% .% .% −.% −.% −.%
Adjusted Patell Z −. . . −. −. −.
Adjusted Patell Z p-value .** .** .* .* .** .
IN (N = ) AAR −.% .% .% .% −.% −.%
Adjusted Patell Z −. . . −. −. −.
Adjusted Patell Z p-value . .* .*** . . .
OUTSIDE (N = ) AAR −.% .% −.% −.% −.% −.%
Adjusted Patell Z −. . −. −. −. −.
Adjusted Patell Z p-value . . . . .** .
ALL (N = ) AAR −.% .% −.% .% .% −.%
Adjusted Patell Z −. . −. . −. −.
Adjusted Patell Z p-value . . . . . .
IN (N = ) AAR −.% .% −.% .% .% −.%
Adjusted Patell Z −. . −. . −. −.
Adjusted Patell Z p-value . . . . . .
OUTSIDE (N = ) AAR −.% −.% −.% −.% .% −.%
Adjusted Patell Z −. −. −. −. . −.
Adjusted Patell Z p-value . . . . . .
ALL (N = ) AAR .% .% −.% .% −.% .%
Adjusted Patell Z . . . . −. .
Adjusted Patell Z p-value . .*** . . . .**
IN (N = ) AAR −.% .% −.% .% −.% .%
Adjusted Patell Z . . −. −. −. .
Adjusted Patell Z p−value . .*** . . . .
OUTSIDE (N = ) AAR .% −.% .% .% −.% .%
Adjusted Patell Z . −. . . −. .
Adjusted Patell Z p−value . . .** . .** .***
Source: Own elaboration.
AAR, average abnormal return.
Polish stock price reactions to debt restructuring arrangements 289
During the first event analysis, i.e., the public disclosure of information about the conclusion of an
arrangement by creditors, several statistically significant above-average returns were observed for the
entire study sample. On the day of the event, there was a statistically significant above-average and positive
return. The calculated AAR rate on that day was 2.0%, with the value being significant at a = 0.05. Thus, the
H1P hypothesis posed in the introduction of the paper is confirmed. Therefore, it can be concluded that the
public disclosure of entering into an arrangement in restructuring proceedings results in an above-average
increase in stock prices. This pattern was confirmed on the day of the event, that is, for the day labeled as
AAR(0). On the next day, that is, 1 day after the event, there was still an above-average positive return, and
although its average value was 2.5%, it was statistically significant at a = 0.1. This indicates a relatively
long process of the market discounting this positive news. After increases on the day of the event and the
day after the event, the next 2 days, i.e., AAR(2) and AAR(3), also saw statistically significant returns (at
a = 0.1 and a = 0.05, respectively). Still, these were above-average negative returns of -0.4% and -2.2%,
respectively. Thus, it can be seen that upon receiving such information, the investors try to earn profit
quickly (within the next 2 days), which is also illustrated by the AAR rate 3 days after the event. Significantly,
also the day before the event, the stocks of companies that are about to conclude an arrangement with
creditors show a statistically significant above-average negative return. This can probably be attributed
to difficult negotiations and the investors’ concern about their success. It is significant, however, that
the public disclosure of this positive information results only in a short impulse to obtain above-average
positive return rates. The above-average return rates were negative on the other examined days of the event
window. While dividing the study sample into two smaller subsamples, it was observed that for companies
whose information is published during an active trading session, there are statistically significant positive
above-average return rates on the day of the event and the day after. In addition, on the day of the event,
the AAR is 2% (a = 0.1), and 1 day after the event, it is already 4.5% (a = 0.01). It is evident that the investors’
reaction is spread over a few days and positive, but with a 1-day delay. This subsample had above-average
returns that were not statistically significant on the remaining days. There were only eight cases when
the information about arrangement approval appeared outside the active session, and none of the days in
consideration saw a statistically significant above-average return. Interestingly, the positive above-average
rate of return occurred only on the day of the event, which is likely due to more time the investors had to
assess this information when the session was not active. There were above-average negative returns within
the event window on the rest of the days analyzed.
The second event results, i.e., the court approval of an arrangement, were somewhat surprising. No
statistically significant above-average rates of return were observed in any of the events in this study cross-
section. In this context, it was not relevant whether all companies were studied together or by the time of
public disclosure. Therefore, there is no basis for considering the H2P hypothesis valid. This means that the
public disclosure of information about the court approval of an arrangement does not result in an above-
average increase in the stock price of a company. The implication is that investors treat the public disclosure
of such news as a formality, and a positive reaction that occurs after concluding an arrangement is not
repeated when it is formally approved. This may also be related to the fact that out of 32 studied events, all
arrangements gained court approval. Thus, it was not a stimulus to above-average returns because there
was no uncertainty associated with it.
The situation is different when the decision on the arrangement approval becomes final. On the day
of such an event, all studied companies recorded above-average positive returns of 5.2%, with the highest
statistical significance of a = 0.01. This means that the validity of the H3P hypothesis is proven. Therefore,
it can be concluded that the public disclosure of information about the approval of the arrangement in the
restructuring proceedings becoming final results in an above-average increase in the stock price for such
a company. It is probably connected with the end of a long-term and difficult process and resuming the
“normal” operation of the company, which encourages investors to purchase mostly undervalued stocks.
The same effect was also found for companies for which the public disclosure of information was made
during the active trading session. On the other hand, for companies for which the public disclosure of the
court decision becoming final was made outside the active trading session, above-average and positive
return rates were observed the day after the event. Importantly, the increases in the latter case were almost
290B. Prusak and M. Potrykus
Table 5. Event analysis results, including CAAR rates
Event
No.
Grouping variable CAAR
value
Pos:neg
CAAR
Adjusted
Patell Z
Adjusted
PatellZ p-value
Statistical
significance
ALL (N = ) −.% : −. .
IN (N = ) −.% : −. .
OUTSIDE (N = ) −.% : −. . **
ALL (N = ) −.% : −. .
IN (N = ) −.% : −. .
OUTSIDE (N = ) −.% : −. .
ALL .% : . . ***
IN (N = ) .% : . .
OUTSIDE (N = ) .% : . . **
Source: Own elaboration.
CAAR, cumulative average abnormal return.
four times lower. A graphic representation of the AAR rate for the three events analyzed in all companies is
included in Figure 4.
Table 5 presents the analysis results in the context of the CAAR rate. Surprisingly, the first two events
gave negative cumulative above-average returns in the event window analyzed. Admittedly, when examining
the first event for companies for which the information appeared outside the trading session, the result was
statistically significant only for the CAAR rate. However, the very fact of achieving negative rates was quite
a surprise.
In each cross-section studied, negative rates outnumbered positive ones for the first two events. The
authors of this study attribute this to a twin law defined in the literature as the reversal effect [Schatzberg
and Reiber, 1992]. This is because, in the case of analyzed Events No. 1 and 2, it turns out that positive
information triggered a return rate increase, however short-lived, which was followed by decreases stronger
than the initial increase. For the third event analyzed, i.e., the public disclosure of information about the
arrangement approval becoming final within the event window, the cumulative above-average return
was considerably above zero, distinguishing this event from the previous two. This is related to the much
Figure 4. AAR rates during the event window.
Source: Own elaboration. AAR, average abnormal return.
Polish stock price reactions to debt restructuring arrangements 291
Table 6. Results from testing the hypothesis
Hypotheses Based on AAR() result Based on CAAR result
HP: Public disclosure of an
arrangement conclusion in
restructuring proceedings results
in above-average stock return rates
(Event No. ).
Confirmation of HP. We observe
positive and statistically significant
(a = .) abnormal rate of return
on the event day.
There is no basis for considering the HP
hypothesis valid due to not observing any
(positive or negative) statistically significant
abnormal rates of return for ALL sample. The CAAR
value is negative, but not statistically significant.
HP: Public disclosure of the court
approval of an arrangement in
restructuring proceedings results
in above-average stock return rates
(Event No. ).
There is no basis for considering
the HP hypothesis valid due to not
observing any (positive or negative)
statistically significant abnormal
rates of return for ALL sample.
There is no basis for considering the HP
hypothesis valid due to not observing any
(positive or negative) statistically significant
abnormal rates of return for ALL sample. The CAAR
value is negative, but not statistically significant.
HP: Public disclosure of
an arrangement approval in
restructuring proceedings becoming
final results in above-average stock
return rates (Event No. ).
Confirmation of HP. We observe
positive and statistically significant
(a = .) abnormal rate of return
on the event day.
Confirmation of HP. We observe positive and
statistically significant (a = .) abnormal rate
of return on the event window.
Source: Own elaboration.
AAR, average abnormal return; CAAR, cumulative average abnormal return.
stronger positive reaction on the day of the event and the fact that the arrangement conclusion process ends
at this stage, which is an unambiguously positive sign for the investors.
In Table 6, we summarize the findings obtained from testing our various hypotheses based on AAR and
CAAR rates.
The data presented in Table 6 are a base for final conclusions that we make in a point presented in
the following section, and they also constitute a basis for formulating policy implications for company
managers and investors.
4 Conclusions
Our study contributes to the literature in three aspects. First, this study confirmed that in the analyzed
companies, the public disclosure of information about entering into the arrangement in restructuring
proceedings leads to an above-average and statistically significant increase in stock prices on the day
of the event (confirmation of H1P). The same pattern was confirmed in the case of the public disclosure
of information about the approval of an arrangement in restructuring proceedings becoming final
(confirmation of H3P). In contrast, no statistically significant above-average rates of return were found
for the second event analyzed, i.e., the public disclosure of information about the court approval of an
arrangement (rejection of H2P). The market approaches such information as a mere formality that has no
impact on stock price changes. This means that disclosing information about an arrangement positively
impacts the rate of return on investment in the restructured companies in the short term, i.e., on the day of
the event. Therefore, the main hypothesis is confirmed.
Second, the highest rates of return were found for the third analyzed event, for which the daily above-
average returns were over 5% for all investigated companies and 9.6% for companies whose information
was made public during the session. Moreover, the cumulative rate of return for the first two specified events
was negative, which the authors of the present study attribute to the occurrence of the short-term reversal
effect, the same that was demonstrated in Clark and Weinstein [1983], Schatzberg and Reiber [1992], Datta
and Iskander-Datta [1995], and Dawkins et al. [2007]. In contrast, the cumulative above-average return for
the third event analyzed was high and positive. Therefore, the completion of the restructuring process when
the approval of the arrangement becomes final generates a clear signal for investors to purchase stocks of
a given company.
292B. Prusak and M. Potrykus
Third, it was found that there were significant differences in the duration of the individual stages of the
process analyzed. It was demonstrated that there is considerable room for shortening the legal proceedings,
especially the interval between the court approval of an arrangement and this decision becoming final.
What is surprising here is the significant variability of the results, expressed by a high standard deviation
for the time between Events No. 1 and 2 and between Events No. 2 and 3.
Based on that contribution, we formulated the following implications, which we expect would be
valuable for company managers and investors. Company managers should be aware that giving information
about any step of restructuring proceedings to the public results in higher movement in company stock price
when it is given outside the session. When company managers want to avoid extremely high rates of returns
on their shares, they should take care to give all information about the analyzed process during an active
session. Based on our conclusions, investors can formulate profitability investment strategies dedicated to
companies that go through restructuring proceedings. On the day of the event (Events No. 1 and 3), a good
strategy is to buy such shares and sell them at the end of that session for Event No. 1. For Event No. 3, selling
should take place in a short-time period, i.e., a maximum of 4 days. In a short period, for Events No. 1 and
2, a short selling strategy is also desired. This is applicable especially in a window (2,4) for Event No. 1, and
on the first and fourth day after the event for Event No. 2.
In addition, and this is distinct in the context of previous research, no significant differences were
revealed in the results for the cumulative above-average return for events that occurred during the active
trading session and the events that were made public outside the active trading session, which was true
for all three examined situations. However, such a distribution of the study sample calls for expanded
research in the future, as the number of subsamples (especially for the cases outside the session) was
relatively small. Moreover, after considering more cases, the study could be supplemented with an analysis
of intervals shorter than daily, e.g., minutes. Depending on data availability, which is a major limitation, it
may also be possible to perform analogous analyses for other countries and compare the results. The next
steps of the research may also include studies to assess the reaction of stock prices to negative information,
such as a failure to conclude a debtor–creditor arrangement. In a further stage, the authors also intend to
compare the impact of information about concluding an arrangement or failure to do so on stock prices.
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Appendix 1. Study sample structure
No. Company
name
Creditors’ approval
of the arrangement
(Event No. )
Court approval
of the arrangement
(Event No. )
Court validation
of the arrangement
(Event No. )
Start of
the estimation
window
End of
the estimation
window
ACTION January , August , December , August , January ,
AEDES February , April , September , February ,
ALUMAST June , July , July , January , June ,
ATONHT February , September , February , September , February ,
BIOMEDLUB June , July , September , January , June ,
BUMECH July , September , March , February , July ,
DREWEX October , October , January , May , September ,
DUDA July , September , September , February , July ,
ELEKTROEX December , December , August , July , November ,
IDEON August , September , October , March , August ,
IDMSA September , October , April , April , September ,
IMAGIS January , March , June , August , January ,
INTAKUS June , June , August , December , May ,
INTERBUD October , November , February , May , September ,
INVICO June , July , October , January , June ,
MARKA June , July , September , January , June ,
MIRACULUM May , June , July , December , May ,
MONNARI September , October , November , May , September ,
ODLEWNIE May , May , May , December , April ,
PBG August , October , June , March , August ,
RAFAKO December , January , June , July , December ,
REGNON December , December , February , July , November ,
REGNON May , June , August , December , May ,
RUCHCHORZ December , December , April , July , November ,
SATI S December , March , August , July , November ,
(Continued)
298B. Prusak and M. Potrykus
No. Company
name
Creditors’ approval
of the arrangement
(Event No. )
Court approval
of the arrangement
(Event No. )
Court validation
of the arrangement
(Event No. )
Start of
the estimation
window
End of
the estimation
window
SFINKS February , March , September , February ,
TXM May , June , August , December , May ,
VISTAL July , July , September , February , July ,
VIVID September , November , December , April , September ,
WILBO October , November , January , June , October ,
WORKSERV December , January , February , July , December ,
ZREMB November , December , February , July , November ,
BUDOPOL December , February , May , For these companies, a lack of price changes
within the adopted estimation window was
observed, and thus they were excluded from the
research sample.
ESTAR March ,
GETBACK January , June , February ,
UNIFIED February , May ,
VERTE November , January ,
Note: When the event date differed from the public disclosure date (i.e., public disclosure date is a weekend) then such date is indicated in bold.
Source: Own elaboration.
Appendix 1. Continued
