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Some Estimates of Direct and Indirect Bankruptcy Costs in Australia: September 1978–May 1983

Author

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  • T. Pham

    (School of Banking and Finance, The University of New South Wales, Kensington.)

  • D. Chow

    (Kuala Lumpur, Malaysia.)

Abstract

This study estimates some direct and indirect costs of bankruptcy in the Australian context from September 1978 to May 1983. The findings are: first, there was some degree of capital market inefficiency in the processing of infor Mation relevant to the bankrupt firms; second, bankruptcy costs, in particular indirect costs, were sizeable, approximately over 20% of firm's value; third, the expected present value of bankruptcy costs greatly exceeded the tax benefits from leverage for thirteen of the fourteen firms under study; and, fourth, there was a negative relationship between corporate leverage and the probability of bankruptcy (or expected bankruptcy costs), implying capital structure decisions are affected by the prospect of bankruptcy costs.

Suggested Citation

  • T. Pham & D. Chow, 1989. "Some Estimates of Direct and Indirect Bankruptcy Costs in Australia: September 1978–May 1983," Australian Journal of Management, Australian School of Business, vol. 14(1), pages 75-95, June.
    • Handle: RePEc:sae:ausman:v:14:y:1989:i:1:p:75-95
    DOI: 10.1177/031289628901400105
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    References listed on IDEAS

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