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Railroad Bailouts in the Great Depression

Lyndon Moore and Gertjan Verdickt

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Abstract: The Reconstruction Finance Corporation and Public Works Administration loaned 46 railroads over $802 million between 1932 and 1939. The government goal was to decrease the likelihood of bond defaults and increase employment. Bailed-out railroads did not increase profitability or employment. Instead, they reduced leverage. Bailing out a railroad had little effect on its stock price, but it resulted in an increase in its bond prices and reduced the likelihood of a ratings downgrade. However, bailouts did not help railroads avoid defaulting on their debt. We find some evidence that manufacturing firms located close to railroads benefited from the bailouts.

Date: 2022-05, Revised 2022-06
New Economics Papers: this item is included in nep-his and nep-reg
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Handle: RePEc:arx:papers:2205.13025