Indirect Costs of Financial Distress

• DOI: 10.1093/rof/rfad014
• Publication Date: 2023-04-12T13:34:45Z
• Authors: Cláudia Custódio; Miguel A Ferreira; Emilia Garcia-App...
• Keywords: Financial Distress; Leverage (statistics)

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 leverage. show that for same client buying from different suppliers, client’s purchases distressed suppliers decline an additional 13% following a drop local prices. The effect is more pronounced competitive industries, manufacturing, durable goods, less-specific when switching are low. Our results suggest clients reduce their exposure distress.