Abstract
This paper examines North American pulp and paper company bankrupt-
cies 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 finan-
cial 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