Predicting Return Outcomes to Shareholders from Companies Entering Chapter 11 Bankruptcy

Publisher:
MCB University Press
Publication Type:
Journal Article
Citation:
Managerial Finance, 2001, 27 (4), pp. 78 - 96
Issue Date:
2001-01
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In this paper we develop a model for predicting whether shareholders either lose all their investment, or receive some value, on a firm s exit from Chapter 11 bankruptcy proceedings. Using both firm-specific and market-wide predictor covariates, we employ the proportional hazards model to estimate the hazard that firms will exit from Chapter 11 without returning value to shareholders, and the survival probability that this will not happen. Furthermore, we also estimate how this probability varies over the time that a company may stay in Chapter 11. We develop two models, one using firm-specific covariates only and the other using market-wide and firm-specific covariates. Receiver operating characteristic (ROC) curves are used to examine the predictive ability of the models. Both models were found to have equivalent predictive ability.
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