Events

Finance Seminar

Author:

• Sheridan Titman
  University of Texas at Austin

• Johan Sulaeman
  National University of Singapore

• Elena Andreou
  University of Texas at Austin

We find that a corrupt local environment amplifies the effects of financial distress. Following regional spikes in financial misconduct, credit becomes both more expensive and harder to obtain for nearby borrowers — even those not implicated themselves. This is particularly harmful for cash-constrained firms, which cut investment more sharply and lay off more workers during industry downturns. Moreover, we find that local waves of financial misconduct are a risk factor for bankruptcy.