Taken by Storm: Business Financing and Survival in the Aftermath of Hurricane Katrina
39 Pages Posted: 31 Mar 2014 Last revised: 26 Nov 2016
Date Written: November 17, 2016
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. 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 distortions to allocative efficiency.
Keywords: Capital shock, business survival, financial constraints, hurricane, Katrina, Longitudinal Business Database
JEL Classification: D22, G32, L11, L81
Suggested Citation: Suggested Citation