The Agglomeration of Bankruptcy

50 Pages Posted: 30 Jun 2014 Last revised: 18 Jul 2014

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Nittai Bergman

Tel Aviv University; National Bureau of Economic Research (NBER)

Anna Milanez

Deloitte Consulting LLP

Vladimir Mukharlyamov

Georgetown University - McDonough School of Business

Date Written: June 2014

Abstract

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.

Suggested Citation

Benmelech, Efraim and Bergman, Nittai and Milanez, Anna and Mukharlyamov, Vladimir, The Agglomeration of Bankruptcy (June 2014). NBER Working Paper No. w20254. Available at SSRN: https://ssrn.com/abstract=2460573

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nittai Bergman

Tel Aviv University

Ramat Aviv
Tel-Aviv, 6997801
Israel

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anna Milanez

Deloitte Consulting LLP ( email )

1919 N Lynn Street
Arlington, VA 22209
United States

Vladimir Mukharlyamov

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

HOME PAGE: http://explore.georgetown.edu/people/vm462/

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