The Cost of Declaration - Corporate Bankruptcy and Unemployment

The Chapter 11 bankruptcy process provides corporations a legally protected forum for reorganizing their obligations meant to maximize claimant recoveries and protect jobs. However, debtors can also incur significant costs through the bankruptcy process which can damage the debtor’s future prospects as a firm and thereby employment at the firm. This paper examines the relationship between bankruptcy filings and employment metrics at a county level using both Ordinary Least-Squares regressions and event study models. I find a positive relationship between bankruptcy filings and changes in the unemployment rate and a negative relationship between filings and changes in employment and labor force numbers. Causality within this relationship is argued for using a structural model.