Working Paper: NBER ID: w11763
Authors: Li Gan; Tarun Sabarwal
Abstract: A test of adverse events and strategic timing theories can be conducted by determining whether some relevant financial decision variables, such as financial benefit from filing for bankruptcy, or debt discharged in bankruptcy are endogenous with the bankruptcy decision or not. For the strategic timing theory such decisions are endogenous, while for the adverse events theory they are not. Hausman tests for endogeneity show that financial benefit, unsecured debt, and non-exempt assets are exogenous with the bankruptcy decision, consistent with the adverse events theory.
Keywords: consumer bankruptcy; adverse events; strategic timing; financial decision variables
JEL Codes: D12; D14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| adverse events (I12) | financial stress (G51) |
| financial stress (G51) | bankruptcy decision (K35) |
| adverse events (I12) | bankruptcy decision (K35) |
| debt levels (H63) | financial benefit from bankruptcy (K35) |
| nonexempt assets (D14) | financial benefit from bankruptcy (K35) |