Friends During Hard Times: Evidence from the Great Depression

94 Pages Posted: 17 Sep 2016 Last revised: 6 Aug 2020

See all articles by Tania Babina

Tania Babina

Columbia Business School - Finance and Economics

Diego Garcia

University of Colorado at Boulder

Geoffrey A. Tate

University of Maryland - Robert H. Smith School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 1, 2020

Abstract

Using a novel dataset of over 3,500 public and private firms, we construct the network of firm connections through executives and directors on the eve of the 1929 financial market crash. We find that more connected firms have 17% higher 10-year survival rates on average. Consistent with a role in facilitating access to working capital, the results are particularly strong for small firms, private firms, cash-poor firms, and firms located in counties with high bank suspension rates during the crisis. Moreover, connections to cash-rich firms that increase their accounts receivable during the peak of the crisis are most important for survival. Our results suggest that network connections can play a stabilizing role during a financial crisis by easing the flow of capital to constrained firms.

Keywords: network, firm performance, management, directors, Great Depression

JEL Classification: G30, G32, L14, N00

Suggested Citation

Babina, Tania and Garcia, Diego and Tate, Geoffrey A., Friends During Hard Times: Evidence from the Great Depression (July 1, 2020). Columbia Business School Research Paper No. 16-67, Available at SSRN: https://ssrn.com/abstract=2839049 or http://dx.doi.org/10.2139/ssrn.2839049

Tania Babina (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Diego Garcia

University of Colorado at Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

Geoffrey A. Tate

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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