CREAT: Census Research Exploration and Analysis Tool

Bankruptcy Spillovers

January 2017

Working Paper Number:

CES-17-16

Abstract

How do different bankruptcy approaches affect the local economy? Using U.S. Census microdata at the establishment level, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We exploit the random assignment of bankruptcy judges as a source of exogenous variation in the probability of liquidation. We find that within a five year period, employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. Most of the decline is due to lower growth of existing establishments and, to a lesser extent, reduced entry into the area. The spillover effects are highly localized and concentrate in the non-tradable and service sectors, particularly when the bankrupt firm operates in the same sector. These results suggest that liquidation leads to a reduction in consumer traffic to the local area and to a decline in knowledge spillovers between firms. The evidence is inconsistent with the notion that liquidation leads to creative destruction, as the removal of bankrupt businesses does not lead to increased entry nor the revitalization of the area.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the text, highlighting the most significant topics and trends. This approach not only enhances searchability but provides connections that go beyond potentially domain-specific author-defined keywords.
:
macroeconomic, restructuring, organizational, finance, subsidiary, sector, recession, establishment, consolidated, incorporated, bankruptcy, economically, spillover, liquidation, bankrupt, creditor

Tags Tags are automatically generated using a pretrained language model from spaCy, which excels at several tasks, including entity tagging.

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:
Standard Statistical Establishment List, Ordinary Least Squares, Longitudinal Business Database, Decennial Census, Penn State University, Employer Identification Numbers, New York University, North American Industry Classification System, Business Register, University of Toronto

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