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Personal Bankruptcy: Reconciling Adverse Events and Strategic Timing Hypotheses Using Heterogeneity in Filing Types
Gan, Li Sabarwal, Tarun Zhang, Shuoxun
Gan, Li
Sabarwal, Tarun
Zhang, Shuoxun
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Abstract
The strategic timing and adverse events hypotheses of personal bankruptcy
have received particular attention. Existing research focuses on proving or
disproving either hypothesis, using a strict interpretation of the role of
financial benefit in the filing decision. Using a more realistic framework in
which financial benefit may affect the filing decision in both hypotheses, we
show that endogeneity of financial benefit is a distinguishing factor between
the two hypotheses. Using two different datasets, we show that the
endogeneity test favors the adverse events hypothesis. Extending the
analysis to allow for both types, we find evidence of heterogeneity in filing
types, consistent with both hypotheses. On average, approximately 16
percent of households are more likely to behave as strategic types and 84
percent as adverse events types. Several implications of these results are
explored.
Description
Gan, Li, Sabarwal, Tarun and Zhang, Shuoxun, (2011), Personal Bankruptcy: Reconciling Adverse Events and Strategic Timing Hypotheses Using Heterogeneity in Filing Types, No 201008, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS, University of Kansas, Department of Economics.
Date
2012-04-18
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Keywords
Consumer bankruptcy, Personal bankruptcy, Adverse events, Strategic timing