24 Pages Posted: 8 Feb 2006
Date Written: November 2005
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: 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
By Ronel Elul