ON DE FINETTI'S OPTIMAL IMPULSE DIVIDEND CONTROL PROBLEM UNDER CHAPTER 11 BANKRUPTCY

Motivated by recent advances made in the study of dividend control and risk management problems involving the U.S.bankruptcy code,in this paper we follow[44]to revisit the De Finetti dividend control problem under the reorganization process and the regulator's intervention documented in U.S.Chapter 11 bankruptcy.We do this by further accommodating the fixed transaction costs on dividends to imitate the real-world procedure of dividend payments.Incorporating the fixed transaction costs transforms the targeting optimal dividend problem into an impulse control problem rather than a singular control problem,and hence computations and proofs that are distinct from[44]are needed.To account for the financial stress that is due to the more subtle concept of Chapter 11 bankruptcy,the surplus process after dividends is driven by a piece-wise spectrally negative Lévy process with endogenous regime switching.Some explicit expressions of the expected net present values under a double barrier dividend strategy,new to the literature,are established in terms of scale functions.With the help of these expressions,we are able to characterize the optimal strategy among the set of admissible double barrier dividend strategies.When the tail of the Lévy measure is log-convex,this optimal double barrier dividend strategy is then verified as the optimal dividend strategy,solving our optimal impulse control problem.

Re-estimation and comparisons of alternative accounting based bankruptcy prediction models for Indian companies

Background:The suitability and performance of the bankruptcy prediction models is an empirical question.The aim of this paper is to develop a bankruptcy prediction model for Indian manufacturing companies on a sample of 208 companies consisting of an equal number of defaulted and non-defaulted firms.Out of 208 companies,130 are used for estimation sample,and 78 are holdout for model validation.The study reestimates the accounting based models such as Altman EI(Journal of Finance 23:19189-209,1968)Z-Score,Ohlson JA(Journal of Accounting Research 18:109-131,1980)Y-Score and Zmijewski ME(Journal of Accounting Research 22:59-82,1984)X-Score model.The paper compares original and re-estimated models to explore the sensitivity of these models towards the change in time periods and financial conditions.Methods:Multiple Discriminant Analysis(MDA)and Probit techniques are employed in the estimation of Z-Score and X-Score models,whereas Logit technique is employed in the estimation of Y-Score and the newly proposed models.The performance of all the original,re-estimated and new proposed models are assessed by predictive accuracy,significance of parameters,long-range accuracy,secondary sample and Receiver Operating Characteristic(ROC)tests.Results:The major findings of the study reveal that the overall predictive accuracy of all the three models improves on estimation and holdout sample when the coefficients are re-estimated.Amongst the contesting models,the new bankruptcy prediction model outperforms other models.Conclusions:The industry specific model should be developed with the new combinations of financial ratios to predict bankruptcy of the firms in a particular country.The study further suggests the coefficients of the models are sensitive to time periods and financial condition.Hence,researchers should be cautioned while choosing the models for bankruptcy prediction to recalculate the models by looking at the recent data in order to get higher predictive accuracy.

Economic Bankruptcy of the Industries in Mato Grosso,Brazil

Data from the Commercial Registry of the Mato Grosso State(JUCEMAT)indicate that the number of bankrupted industries exceeded 16 thousand between 2006 and 2016.This is a high number,to the point of questioning which particularities are related with the economic bankruptcy in the State.The objective of this study is precisely to analyse the profile of these industries that closed their activities in Mato Grosso,considering the estimated survival rate for the extraction and transformation segments.Also,based on the underlying indicators of factor analysis,the crucial factors for the economic bankruptcy of micro and small enterprises in the state are delineated.The main results point to the generalized consequences arising from the main economic crises,with more aggressive effects for the microenterprises of sand,gravel,and cobble extraction.Aggravated problems included also the food and logging industries,the main activities of the local economy,with more pronounced impacts in the South,Southeast,North and Central-North regions of Mato Grosso.The survival rate declined considerably between 2006 and 2008 and,despite recovery in the following period,it has not yet recovered its best performance.In the case of micro and small transformation industries,the results point to a group with limited managerial capacity and lack of strategic planning before the execution of the main stages of production and commercialization.

The Simple Math Error That Can Lead To Bankruptcy

Fifteen years ago,the people of Italy experienced a strange kind of mass hysteria known as"53 fever".The madness centered on the country’s lottery.Players can choose between 11 different wheels,based in cities such as Bari,Naples or Venice.Once you have picked which wheels to play,you can then bet on a selection of numbers between 1 and90.Your winnings depend on how much you initially bet,how many numbers you picked and how many you got right.Sometime in 2003,however,the number 53 simply stopped coming up on the Venice wheel-leading punters to place increasingly big bets on the number in the certainty that it must soon make a reappearance.By early 2005,53 fever had apparently led thousands to their financial ruin,the pain of which resulted in a spate of suicides.The hysteria only died away when it finally came up in the 9 February draw,after182 no-shows and four billion euros worth of bets.

The choice between bankruptcy liquidation and bankruptcy reorganization: a model and evidence

This paper proposes a two-period model to examine which bankruptcy procedure is better for both the debtor and creditor when insolvency happens.Our theoretical model depicts how firm size,industry characteristics,equity structure,and debt structure determine firms’bankruptcy resolutions.Using a comprehensive sample of bankrupt firms in the United States,we verify the predictions of a theoretical model.In our study,we deploy Probit and Logit models to address the predictions in the theoretical framework and conduct a series of robustness checks with econometric methods like Propensity Score Matching to confirm the empirical results.This paper finds that firms with larger size have more chance to file for Chapter 11 reorganization when insolvency happens.We also find that firms in asset-heavy(asset-light)industries are more likely to be reorganized(liquidated)under U.S.bankruptcy code.

A“Going Concern”and the Need to Fully Integrate Economics in the Business School Curriculum

In response to the recommendation by the American Assembly of Collegiate Schools of Business(AACSB,2002),which urged business schools to embark on interdisciplinary programs to facilitate boundary-spanning teaching and learning,many colleges have conducted one form of curriculum integration or the other.Many of these team-taught course integrations,however,concentrate on core business courses without reaching out to related courses in other disciplines.Moreover,due to some factors,the informational contents of management disclosures in annual reports and audit unqualified opinions may not align with the future viability of an enterprise.Using a“going concern concept”,this paper demonstrates how the addition of economics in business school curriculum integration could produce well-rounded business graduates.Economics concepts could unambiguously support the tests that cast doubts on firms’ability to continue operations.

Industry characteristics,court location,and bankruptcy resolution

Insolvent firms usually file for formal bankruptcy protection under either liquidation or reorganization.Reorganization aims to save viable failing firms whereas liquidation focuses on filtering out unviable failing firms.This paper theoretically and empirically investigates the determinants of formal bankruptcy resolution.We present a concise theory to reveal the theoretical boundary between liquidation and reorganization,which reflects how industry characteristics,judicial bias,and firm characteristics affect the outcome of bankruptcy resolution.By using the commercial bankruptcy data on US courts(2000–2016),we validate the proposed theory.In empirical tests,we deploy discrete-choice models to address the main predictions derived from theory and conduct robustness checks(e.g.placebo test).We document that firms are more likely to be reorganized when their industry is experiencing prosperity.Firms in asset-heavy industries(e.g.hotels,mining,and oil)tend to be reorganized.Formal resolution of bankruptcy cases handled by courts in Alaska and Hawaii are more likely to be reorganization than is the case in other states;however,firms that file bankruptcy petitions in California courts are more likely to face liquidation.Finally,larger and more transparent firms are more likely to be reorganized.

ESTIMATION OF CHAIN REACTION BANKRUPTCY STRUCTURE BY CHANCE DISCOVERY METHO—WITH TIME ORDER METHOD AND DIRECTED KEYGRAPH

Chain reaction bankruptcy is regarded as common phenomenon and its effect is to be taken into account when credit risk portfolio is analyzed. But consideration and modeling of its effect leave much room for improvement. That is mainly because method for grasping relations among companies with limited data is underdeveloped. In this article, chance discovery method is applied to estimate industrial relations that are to include companies＇ relations that transmit chain reaction of bankruptcy. Time order method and directed KeyGraph are newly introduced to distinguish and express the time order among defaults that is essential information for the analysis of chain reaction bankruptcy. The steps for the data analysis are introduced and result of example analysis with default data in Kyushu, Japan, 2005 is presented. The structure estimated by the new method is compared with the structure of actual account receivable holders of bankrupted companies for evaluation.

Beyond the Shadow of the Law： Firm Insolvency, State-Building, and the New Policy Bankruptcy Reform in Late Qing Chongqing

This paper modifies the historical assessment of the 1906 Qing Bankruptcy Code by proposing a new approach to the history of commercial dispute resolution. It argues that the Qing bankruptcy reform cannot be understood by evaluating only published sources, and that a thorough understanding of dispute mediation techniques must serve as a foundation for assessing the historical importance of the law. It offers a description of Qing insolvency dispute practices by providing an analysis of cases from the Ba county archives. The results of that analysis suggest that, although the Qing Bankruptcy Code was repealed soon after its introduction, the reform ambitions behind the new legislation were realized through the implementation of another New Policy reform, which allowed chambers of commerce to resolve bankruptcy disputes differently. This conclusion suggests that the basic vision of the Qing economic reforms of the New Policy movement had more of a lasting impact than has been assumed to date.

The joint impact of bankruptcy costs, fire sales and cross-holdings on systemic risk in financial networks

The paper presents a comprehensive model of a banking system that integrates network effects,bankruptcy costs,fire sales,and cross-holdings.For the integrated financial market we prove the existence of a price-payment equilibrium and design an algorithm for the computation of the greatest and the least equilibrium.The number of defaults corresponding to the greatest price-payment equilibrium is analyzed in several comparative case studies.These illustrate the individual and joint impact of interbank liabilities,bankruptcy costs,fire sales and cross-holdings on systemic risk.We study policy implications and regulatory instruments,including central bank guarantees and quantitative easing,the significance of last wills of financial institutions,and capital requirements.

On the bankruptcy of private higher education institutions in China

In recent years,closing down private higher education institutions(HEIs)has become a serious problem in China.It seems that doubt is cast on the rationality of private HEIs and severe competition contributes a lot to their development.Many problems in the process of self-development are caused by both internal and external factors.From the perspective of sustainable development and the healthy development of students,priority should be given to the evolution of an idea to provide a positive environment for the development of private HEIs.This paper is an effort to deal with the statement that higher education in China is a seller’s market and aims to do an objective estimate of the development space for private HEIs.In addition,it shows a clear understanding of establishing the prediction system for relevant issues of private higher education to guarantee the sound development of private HEIs.

Bankruptcy Reorganization in China and the United States:Cautions for the Comparativist

In the late 1930’s Americans developed their first comprehensive law of bankruptcy reorganization.In larger cases,that law provided for the appointment of a trustee and seizure of control of the business from the business’s prior control group.In 1978,that was all changed;the prototype in the United States now leaves the "debtor in possession" charged with operating the business for the benefit of the business’s creditors.In this and many other ways,America’s law differs substantially from China’s relatively-new bankruptcy law.This article briefly looks at some of the stronger differences between the two systems and gives some background to how and why the American system evolved from the older model to the newer one.While we might easily identify many fundamental differences between the American and Chinese systems,drawing normative policy recommendations from those differences is a much more challenging task.One might,of course,be tempted to do so anyway.But the differing cultural,legal,and economic contexts within which bankruptcy reorganization exists suggests that one so tempted should proceed very cautiously and,perhaps,with an extra measure of modesty as well.

Guangxi Nonferrous Metals Announced Bankruptcy

After reorganization efforts spanning over half year,Guangxi Nonferrous Metals Group(Guangxi Nonferrous)still announced bankruptcy to become the first bankruptcy liquidation enterprise among Inter-bank market bond issuers.Since both Guangxi Nonferrous Metals and the administrator failed to put forward reorganization plan draft within six

OPTIONS-GAME ANALYSIS FOR FIRM WITH INSURED DEBT

The strategic model for insured bond of firm is a new model which is developed based on options pricing model and game theory. When firm’s bond was insured against bankruptcy, some interesting results about endogenous bankruptcy and optimal capital structure are obtained.

Health expenditures and personal bankruptcies

Using household-level data from the Panel Study of Income Dynamics, we estimate the extent to which medical expenses are responsible for driving households to bankruptcy. Our results suggest that an increase of 10 percent in medical debts would cause a 27 percent increase in the filing propensity of households with primarily medical debt, and an approximately 36 percent increase in filing propensity of households where medical debts co-exist with primarily credit card debts. Studying the post-bankruptcy scenario, we find that filers are 19 percent less likely to own a home even several years after the filing, compared to non-filers. However, the consequences are less adverse for medical filers i.e. those who filed due to high medical bills compared to other filers.

Forecasting Chinese Corporate Bond Defaults: Comparative Study of Market- vs. Accounting-Based Models

This paper provides the first empirical study on bond defaults in the Chinese market.It overcomes the deficiencies of existing methods,which suffer from lack of actual default data for back testing.With newly available bond default data,we analyze the roles of market variables against accounting variables under various models.While we find that Merton's market-based structural model and KMV's Distance to Default exhibit languid discriminating power compared with hazard models that have carefully constructed predictors,other market variables carry significant information about bond defaults and could help improve on models with only the accounting variables.This implies that the collective intelligence of the market could somehow mitigate the distortion caused by misreported accounting information.Further,model performance can be significantly improved by adding predicting variables that link an individual financial measure to the broader market performance,such as the relative margin—a business environment proxy introduced in this study.We not only shed light on the default behavior of the Chinese bond market,but also provide a promising approach to improve the variable selection process.

Understanding the indicative factors of university/college closings

Higher education has been in a financially precarious position for many years –facing either a total transformation or elimination. Tuition increases and fewercollege-age students from shifting demographics are primary reasons for thefinancial distress. Alternative financial stability models have assumed linearvariable relationships and improperly calculate the probability of default.Stakeholders have historically relied upon models such as those developed byEdmit and the Department of Education which are inadequate at separatingfinancially sound from unsound universities. We used an Automated MachineLearning approach utilizing multiple models to explain the relationship betweenmetrics and the probability of default/closure allowing for more informedmanagerial decisions. This research, although applied to the homogeneousgroup of small liberal arts universities, can be applied to online and stateuniversities and will allow the opportunity to take preventive steps to mitigatethe likelihood of closing due to financial distress.