64 Pages Posted: 21 Nov 2017 Last revised: 28 Sep 2019
Date Written: September 11, 2019
This paper documents a novel empirical link between household and corporate debt markets. I find that in response to more generous personal bankruptcy exemptions, which lower employees’ financial risk, firms take on more debt. The leverage increases by 79 basis points in response to 1% rise in exemptions. This effect is stronger for firms in industries with higher labor turnover and more labor-intensive firms. Overall, results suggest that firms benefit from policies that decrease individuals' financial risk and thus contribute to the understanding of potential spillover effects from the household to the corporate debt market.
Keywords: bankruptcy, household and corporate debt, exemptions, employees
JEL Classification: G32, J21, K35
Suggested Citation: Suggested Citation