Predicting return outcomes to shareholders from companies entering Chapter 11 bankruptcy

Abstract

Reviews previous research on predicting financial distress and the effects of US Chapter 11 bankruptcy (C11B); and explains how survival analysis and Cox’s (1972) proportional hazards model can be used to estimate the financial outcome for the shareholders of C11B. Reduces a previous data set (Russel et al 1999) of 154 companies entering C11B between 1984 and 1993 to 59 (54 of which gave no value to shareholders) and estimates two models to predict this: one based on firm‐specific covariates only and the other adding market‐wide covariates. Explains the methodology, presents the results and uses receiver operating characteristic curves to compare the predictive accuracy of the two. Finds little difference between the and suggests using the simpler model. Briefly summarizes the variables which are most useful in predicting the value outcomes of C11B for shareholders and recognizes the limitations of the study.

Citation

Partington, G., Russel, P., Stevenson, M. and Torbey, V. (2001), "Predicting return outcomes to shareholders from companies entering Chapter 11 bankruptcy", Managerial Finance, Vol. 27 No. 4, pp. 78-96. https://doi.org/10.1108/03074350110767150