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How do exogenous shocks cause bankruptcy? Balance sheet and income statement channels

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  • Vyacheslav Mikhed
  • Barry Scholnick

Abstract

We are the first to examine whether exogenous shocks cause personal bankruptcy through the balance sheet channel and/or the income statement channel. For identification, we examine the effect of exogenous, politically motivated government payments on 200,000 Canadian bankruptcy filings. We find support for the balance sheet channel, in that receipt of the exogenous cash increases the net balance sheet benefits of bankruptcy (unsecured debt discharged minus liquidated assets forgone) required by filers. We also find limited support for the income statement channel, in that exogenous payments reduce bankruptcy filings from individuals whose current expenses exceed their current income.

Suggested Citation

  • Vyacheslav Mikhed & Barry Scholnick, 2014. "How do exogenous shocks cause bankruptcy? Balance sheet and income statement channels," Working Papers 14-17, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:14-17
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    References listed on IDEAS

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    Cited by:

    1. Marcus Box & Karl Gratzer & Xiang Lin, 2020. "Destructive entrepreneurship in the small business sector: bankruptcy fraud in Sweden, 1830–2010," Small Business Economics, Springer, vol. 54(2), pages 437-457, February.

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    More about this item

    Keywords

    Exogenous shocks; Bankruptcy;

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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