What question did this study set out to answer?

This research aims to empirically test a model for distinguishing between bankrupt firms that reorganize and those that liquidate.

March 18, 2026

Discriminating Between Reorganized and Liquidated Firms in Bankruptcy.

Puntos clave

This research aims to empirically test a model for distinguishing between bankrupt firms that reorganize and those that liquidate.
Utilized probit analysis to evaluate the proposed model
Investigated the free assets percentage at bankruptcy filing
Analyzed changes in profitability before bankruptcy
Classified firms based on the model's predictions
69 percent accuracy in classifying firms in the estimation sample
59 percent accuracy in the holdout sample
Identified free assets percentage and profitability changes as significant factors in the model

Resumen

Abstract ABSTRACT: A model proposed by White 1981, 1984 for distinguishing bankrupt firms that successfully reorganize from those that liquidate is tested empirically in this study. Using probit analysis, two factors were found to have significant discriminating power: the proportion of assets not secured or pledged at the bankruptcy filing date (referred to as the free assets percentage) and the change in profitability In the years preceding bankruptcy. The probit model was able to classify accurately 69 percent of the firms in the estimation sample and 59 percent of the firms in a holdout sample.

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