Empirical Economics

, Volume 45, Issue 3, pp 1205-1232

First online:

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

  • Chun-Yu HoAffiliated withSchool of Economics, Antai College of Economics and Management, Shanghai Jiao Tong University
  • , Patrick McCarthyAffiliated withSchool of Economics and the Center for Paper Business and Industry Studies (CPBIS), Ga Tech Email author 
  • , Yi YangAffiliated withCapital One
  • , Xuan YeAffiliated withStern School of Business, New York University

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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 Products Pulp and Paper Industry studies Bankruptcy Corporate finance

JEL Classification

G33 L67 L73 Q23