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

Emek Basker and Javier Miranda

Journal of Economic Geography, 2018, vol. 18, issue 6, 1285-1313

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.

Keywords: Capital shock; business survival; financial constraints; Hurricane; Katrina; Longitudinal Business Database (search for similar items in EconPapers)
JEL-codes: D22 G32 L11 L81 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (20)

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