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Inter-Firm Linkages and the Wealth Effects of Financial Distress Along the Supply Chain

32 Pages Posted: 10 Jul 2006 Last revised: 22 Jan 2009

Michael G. Hertzel

Arizona State University (ASU) - Finance Department

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems

Zhi Li

Chapman University - The George L. Argyros School of Business & Economics

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance

Abstract

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.

Keywords: Bankruptcy, Financial Distress, Contagion, Supply Chain

JEL Classification: G33, G32

Suggested Citation

Hertzel, Michael G. and Officer, Micah S. and Li, Zhi and Cornaggia, Kimberly Rodgers, Inter-Firm Linkages and the Wealth Effects of Financial Distress Along the Supply Chain. Journal of Financial Economics, Vol. 87, No. 2, pp. 374-387. Available at SSRN: https://ssrn.com/abstract=912795

Michael G. Hertzel

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-6869 (Phone)
602-965-8539 (Fax)

Micah S. Officer (Contact Author)

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

Zhi Li

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
714-6287224 (Phone)

Kimberly Rodgers Cornaggia

Pennsylvania State University - Department of Finance ( email )

306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)

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