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Taken by storm: business financing and survival in the aftermath of Hurricane Katrina

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  • Emek Basker
  • Javier Miranda

Abstract

We use Hurricane Katrina’s damage to the Mississippi coast in 2005 as a natural experiment to study business survival in the aftermath of a capital-destruction shock. We find very low survival rates for businesses that incurred physical damage, particularly for small firms and less-productive establishments. Conditional on survival, larger and more-productive businesses that rebuilt their operations hired more workers than their smaller and less-productive counterparts. Auxiliary evidence from the Survey of Business Owners suggests that the differential size effect is tied to the presence of financial constraints, pointing to a socially inefficient level of exits and to distortions of allocative efficiency in response to this negative shock. Over time, the size advantage disappeared and market mechanisms seem to prevail.

Suggested Citation

  • Emek Basker & Javier Miranda, 2018. "Taken by storm: business financing and survival in the aftermath of Hurricane Katrina," Journal of Economic Geography, Oxford University Press, vol. 18(6), pages 1285-1313.
    • Handle: RePEc:oup:jecgeo:v:18:y:2018:i:6:p:1285-1313.
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    File URL: http://hdl.handle.net/10.1093/jeg/lbx023
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    Citations

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    Cited by:

    1. Jasmin Gröschl & Alexander Sandkamp, 2023. "Flood Events and Plant Level Trade: A Chinese Experience," ifo Working Paper Series 389, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Pelli, Martino & Tschopp, Jeanne & Bezmaternykh, Natalia & Eklou, Kodjovi M., 2023. "In the eye of the storm: Firms and capital destruction in India," Journal of Urban Economics, Elsevier, vol. 134(C).
    3. Ferreira, Susana, 2024. "Extreme Weather Events and Climate Change: Economic Impacts and Adaptation Policies," IZA Discussion Papers 16715, Institute of Labor Economics (IZA).
    4. Tobias Sytsma, 2020. "The Impact of Hurricanes on Trade and Welfare: Evidence from US Port-level Exports," Economics of Disasters and Climate Change, Springer, vol. 4(3), pages 625-655, October.
    5. Walls, Margaret A. & Wibbenmeyer, Matthew, 2023. "How Local are the Local Economic Impacts of Wildfires?," RFF Working Paper Series 23-03, Resources for the Future.
    6. Justin Gallagher & Daniel Hartley & Shawn M. Rohlin, 2019. "Weathering an Unexpected Financial Shock: The Role of Cash Grants on Household Finance and Business Survival," Working Paper Series WP-2019-10, Federal Reserve Bank of Chicago.
    7. Siodla, James, 2021. "Firms, fires, and firebreaks: The impact of the 1906 San Francisco disaster on business agglomeration," Regional Science and Urban Economics, Elsevier, vol. 88(C).
    8. Alves, Pedro Jorge & Lima, Ricardo Carvalho de Andrade & Emanuel, Lucas, 2022. "Natural disasters and establishment performance: Evidence from the 2011 Rio de Janeiro Landslides," Regional Science and Urban Economics, Elsevier, vol. 95(C).
    9. Mahieu, Jeroen, 2020. "Creative Destruction? Local Business Conditions and the Earnings of Employees at Startups," MPRA Paper 98557, University Library of Munich, Germany.
    10. Melissa Chow & Jordan Stanley, 2020. "A Shore Thing: Post-Hurricane Outcomes for Businesses in Coastal Areas," Working Papers 20-27, Center for Economic Studies, U.S. Census Bureau.
    11. Toshihiro Okubo & Eric Strobl, 2021. "Natural disasters, firm survival, and growth: Evidence from the Ise Bay Typhoon, Japan," Journal of Regional Science, Wiley Blackwell, vol. 61(5), pages 944-970, November.
    12. Pauline Avril & Gregory Levieuge & Camelia Turcu, 2023. "Do bankers want their umbrellas back when it rains? Evidence from typhoons in China," Working Papers 2023.08, International Network for Economic Research - INFER.
    13. Graff Zivin, Joshua & Liao, Yanjun & Panassié, Yann, 2023. "How hurricanes sweep up housing markets: Evidence from Florida," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).

    More about this item

    Keywords

    Capital shock; business survival; financial constraints; Hurricane; Katrina; Longitudinal Business Database;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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