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

  • Li Gan
  • Tarun Sabarwal

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.

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File URL: http://www.nber.org/papers/w11763.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11763.

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Date of creation: Nov 2005
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Handle: RePEc:nbr:nberwo:11763
Note: AG
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