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Firms’ Management of Infrequent Shocks

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

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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  • Benjamin L. Collier & Andrew F. Haughwout & Howard C. Kunreuther & Erwann O. Michel-Kerjan & Michael A. Stewart, 2016. "Firms’ Management of Infrequent Shocks," NBER Working Papers 22612, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22612
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    2. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    3. Bertrand, Jean-Louis & Parnaudeau, Miia, 2019. "Understanding the economic effects of abnormal weather to mitigate the risk of business failures," Journal of Business Research, Elsevier, vol. 98(C), pages 391-402.
    4. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    5. In Hwan Jo & Tatsuro Senga, 2016. "Firm Dynamics, Misallocation and Targeted Policies," Working Papers 809, Queen Mary University of London, School of Economics and Finance.
    6. Heidi Quah & Janto Haman & Dharmendra Naidu, 2021. "The effect of stock liquidity on investment efficiency under financing constraints and asymmetric information: Evidence from the United States," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2109-2150, April.
    7. José Manuel Mansilla-Fernández & Juliette Milgram-Baleix, 2023. "Working capital management, financial constraints and exports: evidence from European and US manufacturers," Empirical Economics, Springer, vol. 64(4), pages 1769-1810, April.
    8. Jutta-Lucia Leis & Stefan Kienberger, 2020. "Climate Risk and Vulnerability Assessment of Floods in Austria: Mapping Homogenous Regions, Hotspots and Typologies," Sustainability, MDPI, vol. 12(16), pages 1-21, August.

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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