The Nature Of Chapter-22 Debtors - Forecasting Bankruptcy Recidivism Through a Novel Distress Predictor Model

Abstract: This paper investigates the determinants of bankruptcy recidivism in U.S. courts using a sample of large Chapter 11 cases. We develop, through a series of logistic regressions, a novel distress predictor model that provides insights into variables that are critical to predicting bankruptcy recidivism. We find that high leverage in the capital structure, at the point of bankruptcy emergence, is the single-most significant determinant of bankruptcy recidivism. Low asset size and strong GDP growth prior to the initial bankruptcy also play a key role in predicting recidivism. We don't find evidence of ownership having a significant impact on recidivism rates, although there is some indication that activist investors fare better than lenders when in control.