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A Further Empirical Investigation of the Bankruptcy Cost Question
Author(s) -
ALTMAN EDWARD I.
Publication year - 1984
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1984.tb03893.x
Subject(s) - bankruptcy , leverage (statistics) , proxy (statistics) , economics , empirical evidence , actuarial science , capital structure , indirect costs , payment , cost of capital , empirical research , business , accounting , microeconomics , finance , debt , computer science , incentive , mathematics , philosophy , statistics , epistemology , machine learning
In this paper, empirical evidence with respect to both the direct and indirect costs of bankruptcy is assessed. This should be of interest for three related reasons. First, there is a need to provide further evidence as to the size of bankruptcy costs. Second, for the first time a proxy methodology for measuring indirect costs of bankruptcy is presented and actually measured. Third, a simple format for measuring the present value of expected bankruptcy costs is compared with the present value of expected tax benefits from interest payments on leverage. This comparison has important implications for the continuing debate as to whether or not an optimum capital structure exists for corporations.