Indirect costs of financial distress

Claudia Custodio, Miguel A. Ferreira and Emilia Garcia-Appendini

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: We estimate the economic costs of financial distress due to lost sales, by exploiting cross-supplier variation in real estate assets and leverage and the timing of real estate shocks. We show that for the same client buying from different suppliers, its purchases from distressed suppliers decline by an additional 10% following a drop in real estate 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.

Keywords: Financial distress; Economic distress; Real estate prices; Supply chain (search for similar items in EconPapers)
JEL-codes: G31 G32 G33 L11 L14 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2022
New Economics Papers: this item is included in nep-cfn, nep-rmg and nep-ure
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https://run.unl.pt/bitstream/10362/143362/3/WP648.pdf

Related works:
Journal Article: Indirect Costs of Financial Distress* (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp648

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