Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms

Marianna Kudlyak and Juan Sanchez

No 2016-5, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Gertler and Gilchrist (1994) provide evidence for the prevailing view that adverse shocks are propagated via credit constraints of small firms. We revisit the behavior of small versus large firms during the episodes of credit disruption and recessions in the sample extended to cover the 2007-09 economic crisis. We find that large firms'' short-term debt and sales contracted relatively more than those of small firms during the 2007-09 episode. Furthermore, the short-term debt of large firms also contracted relatively more in the previous tight money episodes if one takes into account the longer period that it takes for large firms? debt to reach its post-shock trough. Our findings challenge the view that propagation of shocks in the economy takes place via credit constraints of small firms.

Keywords: Small and Large firms; credit constraints; Propagation of Shocks; Leverage (search for similar items in EconPapers)
JEL-codes: E32 E51 E52 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016-03-30
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Working Paper: Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms (2016)
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DOI: 10.20955/wp.2016.005

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