Real Effects of Financial Distress: The Role of Heterogeneity (with Sudipto Karmakar)
Abstract:
What are the heterogeneous effects of financial shocks on firms’ beh avior? This paper evaluates and answers this question from both an empirica l and a theoretical perspective. Using micro data from Portugal during the sovereign debt crisis, starting in 2010, we document that highly leveraged firms and firms that had a larger share of short-term debt on their balance sheets contracted more in the aftermath of a financial shock. We use a sta ndard model to analyze the conditions under which leverage and debt maturit y determine the sensitivity of firms’ investment decisions to financial sho cks. We show that the presence of long-term investment projects and frictio ns to the issuance of long-term debt are needed for the model to rationaliz e the empirical findings. We conclude that the differential responses of fi rms to a financial shock do not provide unambiguous information to identify these shocks. Rather, we argue that this information should be used to tes t for the relevance of important model assumptions.
DTSTAMP:20260405T211046Z DTSTART:20180426T163000Z DTEND:20180426T180000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR