The Agglomeration of Bankruptcy

NBER Working Paper No. 20254

Issued in June 2014, Revised in October 2014

NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, Industrial Organization, Law and Economics, Public Economics



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.

A non-technical summary of this paper is available in the November 2014 NBER Digest. You can sign up to receive the NBER Digest by email.



Acknowledgments

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Document Object Identifier (DOI): 10.3386/w20254

Published: Efraim Benmelech & Nittai Bergman & Anna Milanez & Vladimir Mukharlyamov, 2019. "The Agglomeration of Bankruptcy," The Review of Financial Studies, vol 32(7), pages 2541-2586. citation courtesy of

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