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After the Storm: How Emergency Liquidity Helps Small Businesses Following Natural Disasters

Author

Listed:
  • Benjamin Collier
  • Sabrina T. Howell
  • Lea Rendell

Abstract

Does emergency credit prevent long-term financial distress? We study the causal effects of government-provided recovery loans to small businesses following natural disasters. The rapid financial injection might enable viable firms to survive and grow or might hobble precarious firms with more risk and interest obligations. We show that the loans reduce exit and bankruptcy, increase employment and revenue, unlock private credit, and reduce delinquency. These effects, especially the crowding-in of private credit, appear to reflect resolving uncertainty about repair. We do not find capital reallocation away from neighboring firms and see some evidence of positive spillovers on local entry.

Suggested Citation

  • Benjamin Collier & Sabrina T. Howell & Lea Rendell, 2024. "After the Storm: How Emergency Liquidity Helps Small Businesses Following Natural Disasters," Working Papers 24-20, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:24-20
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    File URL: https://www2.census.gov/library/working-papers/2024/adrm/ces/CES-WP-24-20.pdf
    File Function: First version, 2024
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    Cited by:

    1. Benjamin L. Collier & Daniel A. Hartley & Benjamin J. Keys & Jing Xian Ng, 2024. "Credit When You Need It," NBER Working Papers 32845, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Financing frictions; natural disasters; climate change adaptation; entrepreneurship; government credit;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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