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Financing Negative Shocks: Evidence from Hurricane Harvey

Published online by Cambridge University Press:  12 February 2024

Benjamin L. Collier Open the ORCID record for Benjamin L. Collier [Opens in a new window] ,
Lawrence S. Powell Open the ORCID record for Lawrence S. Powell [Opens in a new window] ,
Marc A. Ragin Open the ORCID record for Marc A. Ragin [Opens in a new window]  and
Xuesong You Open the ORCID record for Xuesong You [Opens in a new window]
Benjamin L. Collier
Affiliation:
Temple University Fox School of Business collier@temple.edu
Lawrence S. Powell
Affiliation:
University of Alabama Culverhouse College of Business lars.powell@ua.edu
Marc A. Ragin*
Affiliation:
University of Georgia Terry College of Business
Xuesong You
Affiliation:
Federal Home Loan Mortgage Corporation xuesong_you@freddiemac.com
*
mragin@uga.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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We examine the effects of a severe climate event on local firms. Our data include 8,218 business credit reports and a detailed survey of 273 businesses in the area affected by Hurricane Harvey. Delinquent credit balances doubled in areas with the worst flooding, although nonflooded areas also had significant credit impairments. Only independent businesses showed signs of distress; subsidiaries of larger firms did not. Firms were largely uninsured and often were denied credit postdisaster. Many funded recovery informally, such as through friends and family. Our findings suggest that several financial frictions compound the challenges posed by a severe climate event.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 31
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Vaibhav Anand, Emily Gallagher, Justin Gallagher, Erik Gilje, Daniel Hartley, Will Jackson, Javier Miranda, Shawn Rohlin, Barbara Simmons, and seminar participants at the 2020 World Risk and Insurance Economics Congress (WRIEC), Temple University, Florida State University, University of Alabama, University of Mississippi, University of St. Gallen, and the Wharton Risk Management and Decision Processes Center for helpful comments and assistance. We also thank Mara Faccio (the editor) and an anonymous referee for their time and input in improving the paper. The authors gratefully acknowledge financial support from the Alabama Center for Insurance Information and Research at the University of Alabama. Human subject participation in this study was approved by the Institutional Review Board at the University of Georgia.

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