Credit Relationships and Business Bankruptcy during the Great Depression
- (pp. 228-55)
Abstract
Credit relationships are sticky. Stickiness makes relationships beneficial to borrowers in times of their own distress but makes them potentially problematic when lenders themselves face hardship. To examine the role of credit relationships during a financial crisis, we exploit a natural experiment in Mississippi during the Great Depression that generated plausibly exogenous differences in financial distress for banks. Using new data drawn from the publications of the credit rating agency Dun & Bradstreet and from original bankruptcy filings, we show that financial distress increased business exit but did not increase the bankruptcy rate. Financial distress caused both banks and trade creditors to recalibrate their collections strategies, which is revealed by changes in the geographical distribution of the creditors of bankrupt businesses.Citation
Hansen, Mary Eschelbach, and Nicolas L. Ziebarth. 2017. "Credit Relationships and Business Bankruptcy during the Great Depression." American Economic Journal: Macroeconomics, 9 (2): 228-55. DOI: 10.1257/mac.20150218Additional Materials
JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- G33 Bankruptcy; Liquidation
- N12 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913-
- N22 Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-
- N82 Micro-Business History: U.S.; Canada: 1913-
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