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STRATEGIC OR NONSTRATEGIC: THE ROLE OF FINANCIAL BENEFIT IN BANKRUPTCY
Author(s) -
Zhang Shuoxun,
Sabarwal Tarun,
Gan Li
Publication year - 2015
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12163
Subject(s) - bankruptcy , endogeneity , economics , debt , ex ante , test (biology) , actuarial science , finance , business , econometrics , macroeconomics , paleontology , biology
A partial test for strategic behavior in bankruptcy filing may be formulated by testing whether consumers manipulate their debt and filing decision jointly, or not: that is, testing for endogeneity of financial benefit and the bankruptcy filing decision. Using joint maximum likelihood estimation of an extended discrete choice model, test results are consistent with nonstrategic filing: financial benefit is exogenous to the filing decision. This result is confirmed in two different datasets ( Panel Study of Income Dynamics and Survey of Consumer Finances ). This result is consistent with an ex ante low net gain from a bankruptcy filing; a type of “rational inattention” to rare events such as bankruptcy . ( JEL D12, D14)