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

Li Gan () and Tarun Sabarwal

No 11763, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D12 D14 (search for similar items in EconPapers)
Date: 2005-11
Note: AG
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