why shares of bankrupt companies usually go bad?

Answer 1

The simple answer is that shares of stock represent an ownership interest in the corporations equity. Equity is the positive value difference between assets and liabilities. (Equity in your home is the difference between what you own (market value, an asset) and what you owe (mortgage, a liability). If your house is worth more than the mortgage you are said to have "equity".

In a bankrupt company, liabilities exceed assets and so there is no equity. While the stock may continue to trade while the company is in bankruptcy on the hope that it will have some future value, at the time of the bankruptcy is really has no value at all.

In cases where shareholders end up with nothing - worthless stock - it is simply the actual workout of this reality: the equity is non existant and so the shares are worthless.

Good Luck

Answer 2

Because the companies are bankrupt... This is a simplified view of what is happening. Basically a bankruptcy is a reorganization. A plan is developed to repay all the debts possible without destroying the underlying company. Some lenders do get the full value of their debts bank. The residual debt that is unpaid has the first claims on the remaining value of the company. As a result the lenders are often issued shares in the residual company as recovery for their loans. If you own shares of the bankrupt company, you are last in line for recovery and are getting squeezed out by the lenders. In many cases your shares are worthless because "new" shares are being issued in the company. In some rare instances, a bankruptcy can lead to value recovery for shareholders.