Abstract

Firm-Specific Estimates of the Ex Ante Bankruptcy Discount

Craig M. Lewis
Vanderbilt University - Owen Graduate School of Management

April 2, 2009

Abstract:
This paper uses an Adjusted Present Value model based on the interaction between taxes and expected bankruptcy costs to estimate firm-specific estimates of the ex ante bankruptcy discount. I find that firms lose 16.3% of firm value in bankruptcy which represents an ex ante bankruptcy discount of 1.4%. By contrast, the present value of tax shields from debt financing are 3.6% of firm value.

Keywords: Bankruptcy, Financial Distress, Bankruptcy Costs

JEL Classifications: G32, G33

Working Paper Series

Date posted: April 03, 2009 ; Last revised: April 03, 2009

Suggested Citation

Lewis, Craig M., Firm-Specific Estimates of the Ex Ante Bankruptcy Discount (April 2, 2009). Available at SSRN: http://ssrn.com/abstract=1372284

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Contact Information

Craig M. Lewis (Contact Author)

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-2626 (Phone)
615-343-7177 (Fax)