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Firms’ Management of Infrequent Shocks

Published on Dec 3, 2019in Journal of Money, Credit and Banking
· DOI :10.1111/JMCB.12674
Benjamin Collier6
Estimated H-index: 6
(TU: Temple University),
Andrew F. Haughwout19
Estimated H-index: 19
(Federal Reserve Bank of New York)
+ 2 AuthorsMichael A. Stewart1
Estimated H-index: 1
(Federal Reserve Bank of New York)
Abstract
We examine businesses’ financial management of a rare, severe event using detailed firm-level data collected following Hurricane Sandy in the New York area. Credit played a prominent role in financing recovery; more negatively affected firms took on debt because of Sandy (38%) than received insurance payments (15%) in our data. Negatively affected firms were often credit constrained after the shock. While firms’ demand for insurance is often explained by financing frictions, we find that the most credit constrained firms after the event, younger firms and smaller firms, were the least likely to insure before it.
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