Do bankrupt firms impose negative externalities on their non-bankrupt competitors? We propose and analyze a collateral channel in which a firm's bankruptcy reduces collateral values of other industry participants, thereby increasing the cost of external debt finance industry wide. To identify...

Do bankrupt firms impose negative externalities on their non-bankrupt competitors? We propose and analyze a collateral channel in which a firm's bankruptcy reduces collateral values of other industry participants, thereby increasing the cost of external debt finance industry wide. To identify...

This paper shows that lending relationships insulate corporate investment from fluctuations in collateral values. We construct a novel database covering the banking relationships of private and public UK firms and their individual directors. The sensitivity of corporate investment to changes in...

Should debtor countries support each other during sovereign debt crises? We answer this question through the lens of a two-country sovereign-default model that we calibrate to the euro-area periphery. First, we look at cross-country bailouts. We find that whenever agents anticipate their...

This paper studies strategic savings and free-riding behaviours among ex- ante vulnerable firms in a fixed debt network under linear and quadratic default punishment structures. We specifically pay attention to networks without ex-ante default feedbacks. Results show Nash equilibrium are unique,...

This paper investigates systemic risk and contagion processes in the inter-bank network using network science methods. The inter-bank network consisting 10 banks, similar to the real world inter-bank networks, is studied to understand the contagion process in the network regarding changes in the...