The Impact of Corporate Decisions on the Dynamics of the Stock Prices of Troubled Russian Companies

This paper investigates a short-term as well as a long-term reaction of the Russian stock market to restructuring announcments made by distressed companies by applying common event study methodology. It was revealed that there is a positive market reaction to debt restructuring announcements as well as sale of assets. Results indicate that these decisions are perceived by investors as effective ways of improving the financial situation of distressed companies and thus they are considered as value-enhancing. Announcements of the additional issue of shares lead to a negative market reaction, which is related to the problem of "debt overhang" and the redistribution of wealth from shareholders to creditors. This strategy of overcoming financial instability is perceived by the market as an inefficient way that leads to the destruction of shareholder value. CEO turnover announcements did not reveal any significant reaction of the stock market. Analysis of the long-term dynamics of stock prices after the announcement of debt restructuring, which acts as one of the indicators of the effectiveness of the restructuring measures, showed that corporate decisions on debt restructuring were effective and led to an increase in the market value of a company when the restructuring was conducted one time during the period under study or was final after several previous attempts to restructure the debt portfolio. On the other hand, negative cumulative abnormal returns during the restructuring period, that indicates ineffectiveness of the restructuring, were identified in the case when the company was forced to conduct a re-structuring or initiate bankruptcy.