Ripple effects from industry defaults

Christian Wolff, Dennis Bams and Magdalena Pisa

No 10891, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies early default risk spillovers to small businesses. This study shows that default rates among small businesses are significantly higher following default on S&P rated debt in their or their customers' industries. Using a new data set on S&P rated debt default, small business default, production process linkages and industry characteristics, we find evidence of negative wealth effects transmitted to small businesses along the production process. Also, such ripple effects are mitigated in loan portfolios that are concentrated into large and highly interconnected industries. We observe that a large number of firms in an industry serves to cushion default risk transmission. This is much like how the broad economic connections other the benefits of diversification.

Keywords: Default risk transmission; Default clustering; Market structure; Supply chain (search for similar items in EconPapers)
JEL-codes: G17 L14 L25 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-ind and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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