Empirical Economics

, Volume 45, Issue 3, pp 1205–1232

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


DOI: 10.1007/s00181-012-0661-6

Cite this article as:
Ho, CY., 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 Products Pulp and Paper Industry studies  Bankruptcy Corporate finance 

JEL Classification

G33 L67 L73 Q23 

Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Chun-Yu Ho
    • 1
  • Patrick McCarthy
    • 2
  • Yi Yang
    • 3
  • Xuan Ye
    • 4
  1. 1.School of Economics, Antai College of Economics and ManagementShanghai Jiao Tong UniversityShanghaiPeople’s Republic of China
  2. 2.School of Economics and the Center for Paper Business and Industry Studies (CPBIS)Ga TechAtlantaUSA
  3. 3.Capital OneMcLeanUSA
  4. 4.Stern School of BusinessNew York UniversityNew YorkUSA

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