Communities as Stakeholders

We provide new evidence on externalities imposed on local communities due to bankruptcy lings of publicly-listed manufacturing firms.

Abstract

Compared to matched counties with similar economic trends, municipal bond yields for counties with firm headquarters increase by 10 bps within a year of a firm’s bankruptcy filing. Notably, in counties with a lasting increase in yields, the local communities suffer prolonged economic distress. The effect is more pronounced for counties with budgetary restrictions. Meanwhile, counties in pro-business states are less affected. The results highlight local communities as stakeholders to public firms whereby firm financial distress affects the municipal bond market.