The Effect of Bankruptcy Contagion on Earnings Informativeness

This study examines the effect of inter-industry bankruptcy contagion on earnings informativeness of surviving firms between 2011 – 2015. In this regard, we test the informativeness of 123 companies listed in the Tehran stock Exchange among 19 industries by abnormal return – unexpected earning regression. Statistical results demonstrate that a firm probability of bankruptcy is negatively associated with informativeness of good news earnings, whereas it has no negative effect on in formativeness of bad news earning. Furthermore, until one bankrupt company exists, earnings in formativeness reduction of good news is more than when a number of bankrupt companies exist. The result shows that bankruptcy contagion through inter-industry reduces the earnings informativeness of surviving firms. Based on conservatism and Asymmetric profit sustainability, in these companies earning response coefficient is asymmetric for good news compared to bad news.