Criminal Justice Contact and Indebtedness in Young Adulthood: Investigating the Potential Role of State-level Hidden Sentences

Contact with the American criminal justice system is associated with socioeconomic disadvantage and financial insecurity, but little research has explored the link between criminal justice contact and indebtedness. In this study, we ask whether contact in young adulthood is associated with access to credit and unsecured debt burdens. We also focus on state-level policies that operate alongside official punishments and restrict citizenship and societal participation among the justice-involved (termed hidden sentences), and ask whether such policies moderate the association between criminal justice contact and indebtedness. We find that criminal justice contact, especially incarceration, is associated with reduced access to unsecured credit and greater absolute and relative debt burdens. These associations are strongest for individuals residing in states with more onerous hidden sentence regimes. We argue that indebtedness is a key socioeconomic consequence of criminal justice contact and that hidden sentences may exacerbate these consequences.

Financial Security at Older Ages

As Americans have become increasingly indebted over time, understanding the factors influencing indebtedness is increasingly important and can help policymakers design policies that discourage debt, thus enhancing private retirement savings so that retirees become less dependent on Social Security benefits. The paper uses data from a major credit bureau of a nationally representative 2 percent random sample from more than 250 million consumer records to examine the financial health and indebtedness of older adults. The data cover the years 2010 through 2018 and follow the same consumers over time. They are supplemented with the zip-code level information from the American Community Survey on neighborhood characteristics, including racial and ethnic composition, education, median income, and poverty. Our preliminary findings suggest that, while the proportion of older adults in serious financial distress is not substantial, their indebtedness is increasing and the growth of unsecured debt (e.g., student debt) has been especially fast. Part of a symposium sponsored by the Economics of Aging Interest Group.

Do Firms Purposefully Change Capital Structure? Evidence from an Investment-Opportunity Shock to Drug Firms

We study the capital structure changes of drug firms after an investment-opportunity shock brought about by the Biologics Price Competition and Innovation Act. Using a difference-in-difference approach, we show that the shock led drug firms to make their capital structures less constraining by decreasing leverage, shortening debt maturity, increasing unsecured debt, and reducing convertible debt. New debt covenants became less restrictive and firms raised equity to preserve borrowing capacity. Our results support the view that firms actively manage their capital structures to bolster financial flexibility and increase debt capacity in response to new investment opportunities.