The Bankruptcy Decision: Empirical Evidence from Canada

30 Pages Posted: 21 Dec 2000

Date Written: November 2000


While the bankruptcy framework introduced in the seminal work of Bulow and Shoven and extended by White has been the foundation for theoretical work in the area for the last 20 years, it has never been empirically tested. The aim of the paper is to examine empirically the Bulow-Shoven-White framework using micro data on 810 bankrupt firms in Canada. Results are generally supportive of the Bulow-Shoven-White framework: the probability of reorganization increases with the level of free assets and the amount of debt reduction while it decreases with the level of unsecured debt. Results also show that the Bulow-Shoven-White framework does not provide a complete picture of the firm's bankruptcy decision. In particular, the relative size of government claims, the legal form of the firm, and the asset/debt ratio are also significant determinants of the bankruptcy decision.

Keywords: Bankruptcy, reorganization, insolvency

JEL Classification: G33, G38

Suggested Citation

Fisher, Timothy and Martel, Jocelyn, The Bankruptcy Decision: Empirical Evidence from Canada (November 2000). Available at SSRN: or

Timothy Fisher

Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
519-884-0710 (2671) (Phone)
519-888-1015 (Fax)

Jocelyn Martel (Contact Author)

ESSEC Business School ( email )

Avenue Bernard Hirsch B.P. 50105
Cergy-Pontoise, 95021
33 1 34 43 33 21 (Phone)

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