I analyze whether the higher financing costs following the idiosyncratic bankruptcy or default of one firm affect the real investment decisions of non-distressed competitors. Results show that firms which are more affected by the higher financing costs (“treated firms”) reduce investment by...

Using a sample of firms matched with their suppliers, we study the use of trade credit as firms approach a default event. We show that, in the extensive margin, around one third of suppliers exit the relationship well ahead of default, but the rest continue the relationship. Relationships are...