We find that the bankruptcy of a publicly listed manufacturing firm increases bond yields of the counties in which the firm has a significant presence. Affected counties that are subject to budgetary restrictions on debt, revenue, or expenditure, reduce their investment in education and other public services. This negative impact is amplified when the county is more dependent on the industry of the bankrupt firm and its upstream suppliers. However, counties located in pro-business states are less affected. Our results highlight how local communities are a major stakeholder in public firms and can be adversely affected by their financial distress, for example, during the Covid-19 pandemic.​

Keywords: Corporate Bankruptcy, Municipal Debt, Stakeholders

JEL Classification: G33, H74​