IDEAS home Printed from https://ideas.repec.org/a/aea/aejmac/v9y2017i2p228-55.html

Credit Relationships and Business Bankruptcy during the Great Depression

Author

Listed:
  • Mary Eschelbach Hansen
  • Nicolas L. Ziebarth

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.

Suggested Citation

  • Mary Eschelbach Hansen & Nicolas L. Ziebarth, 2017. "Credit Relationships and Business Bankruptcy during the Great Depression," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(2), pages 228-255, April.
    • Handle: RePEc:aea:aejmac:v:9:y:2017:i:2:p:228-55
    Note: DOI: 10.1257/mac.20150218
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/articles?id=10.1257/mac.20150218
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=b42SJhnnWtMSiQzJKz1N3GMubcLuba0i
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=akFyT96ZKmde1chndSHgALJKA-YIb-m9
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=DDoPX1950frokm5sql7TfLLS48bWoo9R
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sugata Marjit & Pranab Kumar Das, 2024. "Sources of Finance and Growth," CESifo Working Paper Series 11446, CESifo.
    2. Jerry Jiang & Jacob P. Weber, 2024. "Who Collaborates with the Soviets? Financial Distress and Technology Transfer During the Great Depression," Staff Reports 1134, Federal Reserve Bank of New York.
    3. Peng XU, 2021. "Population Aging and Small Business Exits," Discussion papers 21091, Research Institute of Economy, Trade and Industry (RIETI).
    4. Nicolas L. Ziebarth, 2015. "The Great Depression Through the Eyes of the Census of Manufactures," Historical Methods: A Journal of Quantitative and Interdisciplinary History, Taylor & Francis Journals, vol. 48(4), pages 185-194, October.
    5. Dongping Xie & Mary Eschelbach Hansen, 2020. "Supply of bank loans and business debts: A view from historical bankruptcy cases," Review of Financial Economics, John Wiley & Sons, vol. 38(S1), pages 170-187, March.
    6. Elena Cefis & Cristina Bettinelli & Alex Coad & Orietta Marsili, 2022. "Correction to: Understanding firm exit: a systematic literature review," Small Business Economics, Springer, vol. 59(2), pages 447-447, August.
    7. Sharma, Vivek, 2025. "Real effects of bank shocks," Journal of Financial Stability, Elsevier, vol. 81(C).
    8. Goel, Manisha & Zemel, Michelle, 2018. "Switching to bonds when loans are scarce: Evidence from four U.S. crises," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 1-27.
    9. Basker, Emek & Vickers, Chris & Ziebarth, Nicolas L., 2018. "Competition, productivity, and survival of grocery stores in the Great Depression," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 282-315.
    10. Breitenlechner, Max & Mathy, Gabriel P. & Scharler, Johann, 2021. "Decomposing the U.S. Great Depression: How important were loan supply shocks?," Explorations in Economic History, Elsevier, vol. 79(C).
    11. Jiang, Jerry & Weber, Jacob P., 2025. "Who collaborates with the Soviets? Financial distress and technology transfer during the Great Depression," Explorations in Economic History, Elsevier, vol. 95(C).

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G33 - Financial Economics - - Corporate Finance and Governance - - - 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 - Economic History - - Micro-Business History - - - U.S.; Canada: 1913-

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:9:y:2017:i:2:p:228-55. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.