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Session Chair: Alberto Manconi, Bocconi University Discussant: Xintong Zhan, Fudan University
Location:9B321 (3rd basement floor, International Hall)
Presentations
Production Networks, Capital Structure and Contagion
Carlos Nunez1, Ajay Subramanian2
1California State University, Northridge; 2Georgia State University
We develop a dynamic structural model to show how an economy's production network affects firms' financial decisions, default risks and contagion. We analytically characterize the equilibrium and derive novel implications for the impacts of network characteristics. Firm leverage and default probabilities increase (decrease) with network concentration in larger (smaller) industries, and increase with network sparsity. Our calibrated model shows that network characteristics have quantitatively significant effects. Expected and unexpected shocks to variables influencing firms' financial decisions have contrasting directional and quantitative effects. We exploit our calibrated model to explore the susceptibility of the U.S. production network to default contagion.
