Disruption and Credit Markets

Bo Becker (Stockholm School of Economics, CEPR and ECGI)
Victoria Ivashina (Harvard University, CEPR and NBER)

The following are excerpts from the research paper:

“In this study, we show that over the past half-century, innovative disruptions were central to understanding corporate defaults. In a given year, industries experiencing abnormally high VC or IPO activity subsequently see higher default rates, higher segment exits by conglomerates, and higher yields on bonds issued by the firms in these industries. Overall, we find that disruption is a broad phenomenon, negatively affecting incumbent firms across the spectrum of age, valuation, and levers, with the exception of very large and low-leverage firms, which confirms our central hypothesis.”

“To ensure that we are looking at industries with successful VC investments, which is embedded in the idea of disruption, we use Burgiss data as a second measure of disruption and zoom in on the realized VC returns in each industry over the preceding five-year period.”