Firms' Management of Infrequent Shocks

Benjamin L. Collier, Andrew F. Haughwout, Howard C. Kunreuther, Erwann O. Michel-Kerjan, Michael A. Stewart

NBER Working Paper No. 22612
Issued in September 2016, Revised in April 2017
NBER Program(s):Public Economics

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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Document Object Identifier (DOI): 10.3386/w22612

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