@article{4e7c3a4e098a4bb187277ec99bca4138,
title = "Indirect costs of financial distress",
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{\textquoteright}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.",
keywords = "Economic distress, Financial distress, Real estate prices, Supply chain",
author = "Cl{\'a}udia Cust{\'o}dio and Ferreira, {Miguel A.} and Emilia Garcia-Appendini",
note = "Funding Information: We thank two anonymous referees, Chris Parsons (the editor), Heitor Almeida, Murillo Campello, Daniel Carvalho, Vicente Cu{\~n}at, Camelia Kuhnen, Ronald Masulis, David Matsa, David Thesmar, and Steven Ongena; participants at the EFA 2019, HEC Paris Workshop on Banking, Finance, Macroeconomics, and the Real Economy; and seminar participants at Aalto University, HEC Paris, King{\textquoteright}s College London, Universit{\`a} Cattolica del Sacro Cuore, University of Bristol, University of Cambridge, and University of Zurich for helpful comments. Cust{\'o}dio acknowledges financial support from the European Research Council Grant (project 852577—grow). E.G-A. gratefully acknowledges financial support from the European Research Council (ERC) under the European Union{\textquoteright}s Horizon 2020 research and innovation programme ERC ADG 2016-GA: under grant agreement No. 740272: lending. M.A.F. acknowledges support from Funda{\c c}{\~a}o para a Ci{\^e}ncia e Tecnologia. Funding Information: We thank two anonymous referees, Chris Parsons (the editor), Heitor Almeida, Murillo Campello, Daniel Carvalho, Vicente Cu{\~n}at, Camelia Kuhnen, Ronald Masulis, David Matsa, David Thesmar, and Steven Ongena; participants at the EFA 2019, HEC Paris Workshop on Banking, Finance, Macroeconomics, and the Real Economy; and seminar participants at Aalto University, HEC Paris, King{\textquoteright}s College London, Universit{\`a} Cattolica del Sacro Cuore, University of Bristol, University of Cambridge, and University of Zurich for helpful comments. Cust{\'o}dio acknowledges financial support from the European Research Council Grant (project 852577-grow). E.G-A. gratefully acknowledges financial support from the European Research Council (ERC) under the European Union{\textquoteright}s Horizon 2020 research and innovation programme ERC ADG 2016-GA: under grant agreement No. 740272: lending. M.A.F. acknowledges support from Funda{\c c}{\~a}o para a Ci{\^e}ncia e Tecnologia. Publisher Copyright: {\textcopyright} The Author(s) 2023.",
year = "2023",
month = nov,
day = "1",
doi = "10.1093/rof/rfad014",
language = "English",
volume = "27",
pages = "2233--2270",
journal = "Review Of Finance",
issn = "1572-3097",
publisher = "Oxford University Press",
number = "6",
}