The Agglomeration of Bankruptcy
NBER Working Paper No. 20254
Issued in June 2014, Revised in October 2014
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, Industrial Organization, Law and Economics, Public Economics
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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Machine-readable bibliographic record -
Document Object Identifier (DOI): 10.3386/w20254
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