63 Pages Posted: 12 Mar 2012 Last revised: 16 Jan 2015
Date Written: January 2015
We document that suppliers to purely financially distressed companies that are highly likely to reorganize in bankruptcy incur little or no spillover costs. In contrast, suppliers to economically distressed firms experience large losses in market value which are linked to proxies for the cost of replacing their bankrupt customer. Suppliers experience increased SG&A expenses and lower margins in the year following their trading partner’s bankruptcy which we link to proxies for partner replacement costs. Suppliers continue to extend trade credit to firms which are healthier and where the cost of replacing the partner is higher.
Keywords: Bankruptcy, Financial distress, Contagion, Supply chain
JEL Classification: G30, G33
Suggested Citation: Suggested Citation
Kolay, Madhuparna and Lemmon, Michael L. and Tashjian, Elizabeth, Spreading the Misery? Sources of Bankruptcy Spillover in the Supply Chain (January 2015). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2019733 or http://dx.doi.org/10.2139/ssrn.2019733