NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Li Gan, Tarun Sabarwal

NBER Working Paper No. 11763
Issued in November 2005
NBER Program(s):   AG

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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Document Object Identifier (DOI): 10.3386/w11763

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