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A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy

24 Pages Posted: 8 Feb 2006 Last revised: 24 Aug 2010

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Tarun Sabarwal

University of Kansas

Date Written: November 2005

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.

Suggested Citation

Gan, Li and Sabarwal, Tarun, A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy (November 2005). NBER Working Paper No. w11763. Available at SSRN: https://ssrn.com/abstract=847035

Li Gan (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tarun Sabarwal

University of Kansas ( email )

1415
Lawrence, KS 66045
United States

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