Working Paper: CEPR ID: DP13508
Authors: Bo Becker; Victoria Ivashina
Abstract: In the past thirty years, defaults on corporate bonds have been substantially higher than the historical average. We show that this increase in credit risk can be largely attributed to an increase in the rate at which new and fast-growing firms displace incumbents (a phenomenon sometimes referred to as ‘disruptive innovation’). Industries with a lager presence of firms newly listed on the stock market, as well as industries that receive funding from venture capital, have a higher loss of revenue market share for established firms and subsequently see a rise in corporate bond defaults. Patent filings by individuals as opposed to corporations also predict defaults. These results are not affected by inclusion of controls for industry exposure to offshore manufacturing.
Keywords: disruption; default; corporate bonds
JEL Codes: G12; G30; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| disruption (D59) | corporate bond defaults (G33) |
| new firm entries (M13) | corporate bond defaults (G33) |
| venture capital funding (G24) | corporate bond defaults (G33) |
| patent filings by individual inventors (O31) | corporate bond defaults (G33) |
| disruption (D59) | decline of incumbents (L49) |
| revenue share loss (H27) | corporate bond defaults (G33) |
| market share shifts (L19) | corporate bond defaults (G33) |