Indirect Costs of Financial Distress
Journal
Review of Finance
ISSN
1572-3097
Type
journal article
Date Issued
2023-04-12
Author(s)
Cláudia Custódio
;
Miguel A Ferreira
;
Garcia-appendini Emilia
Abstract
We estimate the indirect costs of financial distress due to lost sales by exploiting real estate (RE) shocks and cross-supplier variation in RE assets and leverage. We show that for the same client buying from different suppliers, the client’s purchases from distressed suppliers decline by an additional 13% following a drop in local RE prices. The effect is more pronounced in more competitive industries, manufacturing, durable goods, less-specific goods, and when the costs of switching suppliers are low. Our results suggest that clients reduce their exposure to suppliers in financial distress.
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Oxford University Press (OUP)
Volume
27
Number
6
Subject(s)
Division(s)