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Some Estimates of Direct and Indirect Bankruptcy Costs in Australia: September 1978–May 1983

Some Estimates of Direct and Indirect Bankruptcy Costs in Australia: September 1978–May 1983 This study estimates some direct and indirect costs of bankruptcy in the Australian context from September 1978 to May 1983.The findings are: first, there was some degree of capital market inefficiency in the processing of infor Mation relevant to the bankrupt firms; second, bankruptcy costs, in particular indirect costs, were sizeable, approximately over 20% of firm's value; third, the expected present value of bankruptcy costs greatly exceeded the tax benefits from leverage for thirteen of the fourteen firms under study; and, fourth, there was a negative relationship between corporate leverage and the probability of bankruptcy (or expected bankruptcy costs), implying capital structure decisions are affected by the prospect of bankruptcy costs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Australian Journal of Management SAGE

Some Estimates of Direct and Indirect Bankruptcy Costs in Australia: September 1978–May 1983

Pham, T.; Chow, D.
Australian Journal of Management , Volume 14 (1): 21 – Jun 1, 1989
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Publisher
SAGE
Copyright
Copyright © by SAGE Publications
ISSN
0312-8962
eISSN
1327-2020
DOI
10.1177/031289628901400105
Publisher site
See Article on Publisher Site

Abstract

This study estimates some direct and indirect costs of bankruptcy in the Australian context from September 1978 to May 1983.The findings are: first, there was some degree of capital market inefficiency in the processing of infor Mation relevant to the bankrupt firms; second, bankruptcy costs, in particular indirect costs, were sizeable, approximately over 20% of firm's value; third, the expected present value of bankruptcy costs greatly exceeded the tax benefits from leverage for thirteen of the fourteen firms under study; and, fourth, there was a negative relationship between corporate leverage and the probability of bankruptcy (or expected bankruptcy costs), implying capital structure decisions are affected by the prospect of bankruptcy costs.

Journal

Australian Journal of Management – SAGE

Published: Jun 1, 1989

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