Inter-Firm Linkages and the Wealth Effects of Financial Distress Along the Supply Chain
Michael G. Hertzel
Arizona State University (ASU) - Finance Department
Micah S. Officer
Loyola Marymount University - Department of Finance and Computer Information Systems
Tulane University, A.B. Freeman School of Business
Kimberly Rodgers Cornaggia
American University - Kogod School of Business
Journal of Financial Economics, Vol. 87, No. 2, pp. 374-387
Extant research examines the extent to which bankruptcy has intra-industry valuation consequences. This study broadens the investigation by examining the wealth effects of distress and bankruptcy filing for suppliers and customers of filing firms. On average, important wealth effects occur prior to and at bankruptcy filings and extend beyond industry competitors along the supply chain. Specifically, distress related to bankruptcy filings is associated with negative and significant stock price effects for suppliers. Supplier wealth effects are more negative when intra-industry contagion is more severe. We also investigate the importance of industry structure, specialized product nature, and leverage on supply chain effects.
Number of Pages in PDF File: 32
Keywords: Bankruptcy, Financial Distress, Contagion, Supply Chain
JEL Classification: G33, G32Accepted Paper Series
Date posted: July 10, 2006 ; Last revised: January 22, 2009
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