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Working Paper
Household Financial Distress and the Burden of ‘Aggregate’ Shocks
In this paper we show that household-level financial distress (FD) varies greatly and can increase vulnerability to economic shocks. To do this, we establish three facts: (i) regions in the United States vary significantly in their “FD-intensity,” measured either by how much additional credit households can access or how delinquent they are on debts, (ii) shocks that are typically viewed as “aggregate” in nature hit geographic areas quite differently, and (iii) FD is an economic “pre-existing condition”: the share of an aggregate shock borne by a region is positively correlated ...
How Will COVID-19 Affect the Spending of Financially Distressed Households?
Consumer spending will drop substantially due to COVID-19, and the declines will hit hardest in households already in financial distress.
Working Paper
Financial Condition and Product Market Cooperation
We provide evidence that existing studies relating financial condition to product market cooperation produce mixed results because of unique features of the industries examined. In particular, all evidence suggesting that poor financial condition decreases cooperation comes from the airline industry during periods of high idle capacity. Using a unique data set of aggregate airfare hikes and a more recent low-idle-capacity period, we find that poor financial condition is positively associated with product market cooperation. Although financially weak airlines appear to value the immediate cash ...
How will COVID-19 Affect Financial Assets, Delinquency and Bankruptcy?
Communities with greater financial distress will face larger income shocks caused by COVID-19 and are less prepared to weather them, while also being more likely to go into further financial distress as the pandemic continues.
Three Reasons Why Millennials May Face Devastating Setback from COVID-19
Will the millennial generation, already known for its financial struggles in the wake of the Great Recession, face a devastating financial setback from the coronavirus pandemic?
Working Paper
Does inequality cause financial distress? Evidence from lottery winners and neighboring bankruptcies
Revised Oct 2016. We test the hypothesis that income inequality causes financial distress. To identify the effect of income inequality, we examine lottery prizes of random dollar magnitudes in the context of very small neighborhoods (13 households on average). We find that a C$1,000 increase in the lottery prize causes a 2.4% rise in subsequent bankruptcies among the winners? close neighbors. We also provide evidence of conspicuous consumption as a mechanism for this causal relationship. The size of lottery prizes increases the value of visible assets (houses, cars, motorcycles), but not ...
Working Paper
Firm Exit and Liquidity: Evidence from the Great Recession
This paper studies the role of credit constraints in accounting for the dynamics of firm exit during the Great Recession. We present novel firm-level evidence on the role of credit constraints on exit behavior during the Great Recession. Firms in financial distress, with tighter access to credit, are more likely to default than firms with more access to credit. This difference widened substantially in the Great Recession while, in contrast, default rates did not vary much by size, age, or productivity. We identify conditions under which standard models of firms subject to financial frictions ...