Inter-industry network and corporate bond recovery rates

We examine the relationship between the recovery rates of defaulted U.S. corporate bonds and the issuing firm’s position within the U.S. economy’s inter-industry trade network. Our findings reveal that bonds issued by firms in more centrally connected industries typically realize higher recovery rates than those in peripheral industries. This is due to the strong inter-industry trade relationships, which provide a channel for transferring bankruptcy assets to alternative users across industry borders. Moreover, industry-wide distress emerges as a fundamental factor influencing recovery rates, with its effects spreading through the network’s trade connections, thereby reducing recovery rates in neighboring industries.