Empirical Economics

, Volume 45, Issue 3, pp 1205–1232

Bankruptcy in the pulp and paper industry: market’s reaction and prediction


  • Chun-Yu Ho
    • School of Economics, Antai College of Economics and ManagementShanghai Jiao Tong University
    • School of Economics and the Center for Paper Business and Industry Studies (CPBIS)Ga Tech
  • Yi Yang
    • Capital One
  • Xuan Ye
    • Stern School of BusinessNew York University

DOI: 10.1007/s00181-012-0661-6

Cite this article as:
Ho, C., McCarthy, P., Yang, Y. et al. Empir Econ (2013) 45: 1205. doi:10.1007/s00181-012-0661-6


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 (J Acc Res, 19, 109–131, 1980), 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.


Forest ProductsPulp and PaperIndustry studies BankruptcyCorporate finance

JEL Classification


Copyright information

© Springer-Verlag Berlin Heidelberg 2012