Journal of Finance Vol. 81 No. 3 2026
Consumer Choice and Corporate Bankruptcy
Abstract
We estimate the indirect costs of corporate bankruptcy associated with lost customers. In incentivized experiments, randomly informing consumers about a firm's Chapter 11 reorganization lowers their willingness to pay for the firm's products by 17% to 28%. Consumers worry that bankruptcy could reduce product quality or prevent future interactions with the bankrupt firm. On average, 38% of consumers are aware of major bankruptcies. Using our experiments to estimate a structural model, we show that these indirect costs of bankruptcy amount to 12% to 15% of a firm's value. We show that these costs are unlikely to arise before bankruptcy.
- DOI
- 10.1111/jofi.70030
- Volume
- 81
- Issue
- 3
- Pages
- 1485-1529
- Language
- en
- Sources
- openalex crossref