Intergenerational Bankruptcy Risks: Learning from Parents’ Mistakes

This study investigates the effects of parental bankruptcy on children’s financial behavior in adulthood. Our quasi-experiment combines a large dataset containing demographic and residence information of Singaporean citizens with a bankruptcy dataset. The results show that children whose parents declared bankruptcy before they were 9 years are 2-3 percentage points less likely to declare bankruptcy than their older siblings who were 9 years and older when the parents’ bankruptcy event occurred. The results withstood a battery of robustness tests to rule out alternative hypotheses, including birth order, cohort effects, and truncated sample bias. We tested different channels that drive the intergenerational bankruptcy effects and found evidence supporting the “learning” channel by children who learn to avoid repeating parental bankruptcy mistakes in adulthood.

Agarwal, Sumit and Sing, Tien Foo and zhang, xiaoyu, Intergenerational Bankruptcy Risks: Learning from Parents’ Mistakes. Available at SSRN: https://ssrn.com/abstract=4223466