The effects of financial distress: Evidence from US GDP growth
John Inekwe (),
Yi Jin and
Ma. Rebecca Valenzuela
Economic Modelling, 2018, vol. 72, issue C, 8-21
This study provides a dynamic characterization of the link between financial distress risk and the real economy. Using a large dataset of firm-level observations, new ex-ante measures of financial distress are developed at the sector level and used to examine growth trends in the US economy. More specifically, we develop a comprehensive set-up for predicting ex-ante financial distress risk, then examine the effects of ex-ante financial distress risk on GDP growth. Our results show that over the period of 1970–2012, ex-ante financial distress risk contracts GDP growth by up to 9 per cent. The results also reveal greater contractions in exports and investment. The results remain unchanged when internal and external instruments are used to address endogeneity issues.
Keywords: Financial distress; Risk; Growth (search for similar items in EconPapers)
JEL-codes: E23 E44 O16 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:72:y:2018:i:c:p:8-21
Access Statistics for this article
Economic Modelling is currently edited by S. Hall and P. Pauly
More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().