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Credit Relationships and Business Bankruptcy During the Great Depression

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  • Mary Eschelbach Hansen
  • Nicolas L. Ziebarth

Abstract

Credit relationships are sticky. Stickiness makes relationships beneficial for borrowers in distress, but potentially problematic for them when lenders face distress. To examine stickiness in a time of distress, we exploit a natural experiment during the Depression that generated differences in banking outcomes. Using a new dataset from Dun & Bradstreet and original bankruptcy filings, we show that greater distress increased exit by up to 16 percent. Distress did not generate more bankruptcies, but it changed the geographical distribution of creditors of bankrupt businesses. This is consistent with a contraction of business-to-business credit where there was greater distress.

Suggested Citation

  • Mary Eschelbach Hansen & Nicolas L. Ziebarth, 2014. "Credit Relationships and Business Bankruptcy During the Great Depression," Working Papers 2014-11, American University, Department of Economics.
    • Handle: RePEc:amu:wpaper:2014-11
    DOI: 10.17606/jyfm-rt92
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    Cited by:

    1. 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.
    2. Elena Cefis & Cristina Bettinelli & Alex Coad & Orietta Marsili, 2022. "Understanding firm exit: a systematic literature review," Small Business Economics, Springer, vol. 59(2), pages 423-446, August.
    3. XU Peng, 2021. "Population Aging and Small Business Exits," Discussion papers 21091, Research Institute of Economy, Trade and Industry (RIETI).
    4. Sugata Marjit & Pranab Kumar Das, 2024. "Sources of Finance and Growth," CESifo Working Paper Series 11446, CESifo.
    5. 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.
    6. 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.
    7. 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).
    8. 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.

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    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-

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