TY  - JOUR
AU  - Benmelech,Efraim
AU  - Bergman,Nittai K.
TI  - Bankruptcy and the Collateral Channel
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15708
PY  - 2010
Y2  - January 2010
UR  - http://www.nber.org/papers/w15708
L1  - http://www.nber.org/papers/w15708.pdf
N1  - Author contact info:
Efraim Benmelech
Harvard University
Department of Economics
Littauer 233
Cambridge, MA 02138
Tel: 617/496-4787
Fax: 617/495-8570
E-Mail: effi_benmelech@harvard.edu

Nittai Bergman
MIT Sloan School of Management
100 Main Street, E62-632
Cambridge, MA 02142
Tel: 617/253-2933
Fax: 617/258-6855
E-Mail: nbergman@mit.edu
AB  - Do bankrupt firms impose negative externalities on their non-bankrupt competitors? We propose and analyze a collateral channel in which a firm’s bankruptcy reduces collateral values of other industry participants, thereby increasing the cost of external debt finance industry wide. To identify this collateral channel, we use a novel dataset of secured debt tranches issued by U.S. airlines which includes a detailed description of the underlying assets serving as collateral. Our estimates suggest that industry bankruptcies have a sizeable impact on the cost of debt financing of other industry participants. We discuss how the collateral channel may lead to contagion effects which amplify the business cycle during industry downturns.
ER  -