Financing Negative Shocks: Evidence from Hurricane Harvey

Abstract

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, though non-flooded areas also had significant impairments. Only independent businesses showed signs of distress; subsidiaries of larger firms did not. Firms were largely uninsured and often were denied credit post-disaster. Many funded recovery informally, such as through friends and family. Our findings suggest that existing financial frictions compound the challenges posed by a severe climate event.

Keywords: Climate Risk, Financing Frictions, Corporate Risk Management, Disaster Recovery

JEL Classification: D22, G32, G33, Q54