Bankruptcy in the Pulp and Paper Industry: Market's Reaction and Prediction
| Title: | Bankruptcy in the Pulp and Paper Industry: Market's Reaction and Prediction |
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| Format: | Journal Article |
| Publication Date: | December 2013 |
| Description: | This paper examines North American pulp and paper company bankruptcies that occurred between 1990 and 2009. We demonstrate that shareholders suffer substantial losses (37%) during the month a bankruptcy occurs. Encouragingly, we show that financial ratios are useful in predicting firm failure and that failed firms are less profitable, more liquidity constrained and higher in debt leverage. Using a binary logit model in the spirit of Ohlson, we predict financial distress for pulp and paper firms 1 to 2 years ahead of the bankruptcy. We also adapt and re-estimate the empirical model on a sample of pulp and paper firms and perform in-sample and out-of-sample forecasts. For the out-of-sample analysis, our re-estimated Ohlson models correctly predict 93% of bankruptcy and non-bankruptcy outcomes. |
| External Contributors: | Chun-Yu Ho, Yi Yang, Xuan Ye |
| Citation: | Ho, Chun-Yu, Patrick McCarthy, Yi Yang, and Xuan Ye. "Bankruptcy in the Pulp and Paper Industry: Market's Reaction and Prediction." Empirical Economics 45.3 (2013): 1205-1232. |
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