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The Role of Business Liquidity During the Great Depression and Afterwards: Differences Between Large and Small Firms

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  • Hunter, Helen Manning

Abstract

This paper describes two contrary developments in corporate finance during the Great Depression. In 1930s downswings the top one percent of firms acquired unusually high rations of liquid assets to receipts, thus withdrawing funds from the spending stream. Smaller firms, however, were forced into highly illiquid positions (by postwar standards) by episodes of monetary restriction in 1931 and 1937. It is argued that both developments made the Depression more severe. A structural change is found after 1945 in the financial behavior of large firms. This is attributed to a new cyclical pattern of price change and lower business uncertainty during postwar recessions.

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  • Hunter, Helen Manning, 1982. "The Role of Business Liquidity During the Great Depression and Afterwards: Differences Between Large and Small Firms," The Journal of Economic History, Cambridge University Press, vol. 42(4), pages 883-902, December.
    • Handle: RePEc:cup:jechis:v:42:y:1982:i:04:p:883-902_02
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    Cited by:

    1. Bernanke, Ben S & Parkinson, Martin L, 1991. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 439-459, June.
    2. Jiang, Lunan, 2014. "Corporate Default, Investment, and the U.S. Great Depression," MPRA Paper 77242, University Library of Munich, Germany, revised 01 Mar 2017.
    3. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    4. Chiaki Moriguchi, 2003. "Implicit Contracts, the Great Depression, and Institutional Change: A Comparative Analysis of U.S. and Japanese Employment Relations, 1920-1940," NBER Working Papers 9559, National Bureau of Economic Research, Inc.
    5. Paul Ehling & David Haushalter, 2014. "When does cash matter? Evidence for private firms," Working Papers 1412, Banco de España.
    6. Benmelech, Efraim & Frydman, Carola & Papanikolaou, Dimitris, 2019. "Financial frictions and employment during the Great Depression," Journal of Financial Economics, Elsevier, vol. 133(3), pages 541-563.
    7. John R. Graham & Sonali Hazarika & Krishnamoorthy Narasimhan, 2011. "Financial Distress in the Great Depression," NBER Working Papers 17388, National Bureau of Economic Research, Inc.
    8. Charles W. Calomiris, 1993. "Financial Factors in the Great Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 61-85, Spring.
    9. Cardinale, Ivano & Scazzieri, Roberto, 2016. "Structural liquidity: The money-industry nexus," Structural Change and Economic Dynamics, Elsevier, vol. 39(C), pages 46-53.
    10. Daniel A.Schiffman, 2001. "Shattered Rails,Ruined Credit: Financial Fragility and Railroad Operations in the Great Depression," Working Papers 2001-07, Bar-Ilan University, Department of Economics.
    11. Charles W. Calomiris & Athanasios Orphanides & Steven A. Sharpe, 1994. "Leverage as a state variable for employment, inventory accumulation, and fixed investment," Finance and Economics Discussion Series 94-24, Board of Governors of the Federal Reserve System (U.S.).
    12. Peter F. Basile & Sung Won Kang & John Landon-Lane & Hugh Rockoff, 2015. "Towards a History of the Junk Bond Market, 1910-1955," Departmental Working Papers 201514, Rutgers University, Department of Economics.

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