Intra-Industry Spillover Effects: Evidence from Bankruptcy Filings
49 Pages Posted: 20 May 2016 Last revised: 24 Mar 2018
Date Written: March 21, 2018
Firms contract capital expenditure and reduce new debt issuances following the bankruptcy of an industry-peer. The effect is strongest for financially constrained firms or firms operating in industries that are nascent, dependent on external finance, or geographically concentrated. The effect weakens in diversified firms and in concentrated industries. Taken together, these findings suggest that financing constraints, firm opacity and industry competition are important amplification factors of the industry spillover effects. We establish causality by identifying idiosyncratic bankruptcies and implementing an instrumental-variables estimation to mitigate the confounding effect of general industry conditions.
Keywords: Bankruptcy, Contagion, Spillovers, Investment
JEL Classification: G31, G32, G33
Suggested Citation: Suggested Citation