Local Opioid Exposure and Corporate Debt Structure

This paper examines how local opioid exposure affects firms’ debt structure. Motivated by evidence that the opioid crisis weakens labor supply, impairs human capital, and increases operating uncertainty, we argue that firms exposed to greater local opioid distress rely more heavily on bank debt because bank lenders provide monitoring, private information production, and renegotiation flexibility that become more valuable when borrower risk is harder to assess. Using a panel of 5,424 U.S. public firms from 2003 to 2020, we find that greater local opioid exposure, measured by county-level opioid-related mortality, is associated with a greater share of bank debt and a lower share of public debt. To strengthen identification, we exploit the staggered adoption of state-level Prescription Drug Monitoring Programs (PDMPs) in a stacked difference-in-differences design. PDMP adoption is followed by reductions in local opioid exposure and a subsequent decline in firms’ reliance on bank debt. The effect is stronger among labor-intensive firms, firms located in tighter local labor markets, firms with higher R&D intensity, and firms facing greater bankruptcy and information risk. Overall, our findings suggest that opioid-related local distress alters corporate financing choices by increasing the relative attractiveness of bank debt.