NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Agglomeration of Bankruptcy

Efraim Benmelech, Nittai Bergman, Anna Milanez, Vladimir Mukharlyamov

NBER Working Paper No. 20254
Issued in June 2014, Revised in October 2014
NBER Program(s):AP, CF, EFG, IO, LE, PE

This paper identifies a new channel through which bankrupt firms impose negative externalities on non-bankrupt peers. The bankruptcy and liquidation of a retail chain weakens the economies of agglomeration in any given local area, reducing the attractiveness of retail centers for remaining stores leading to contagion of financial distress. We find that companies with greater geographic exposure to bankrupt retailers are more likely to close stores in affected areas. We further show that the effect of these externalities on non-bankrupt peers is higher when the affected stores are smaller and are operated by firms with poor financial health.

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Document Object Identifier (DOI): 10.3386/w20254

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