Financing Negative Shocks: Evidence from Hurricane Harvey

56 Pages Posted: 7 Jan 2021 Last revised: 5 May 2022

See all articles by Benjamin Collier

Benjamin Collier

Temple University - Risk Management & Insurance & Actuarial Science

Lawrence Powell

University of Alabama - Culverhouse College of Commerce & Business Administration

Marc A. Ragin

University of Georgia; University of Georgia - Department of Insurance, Legal Studies, Real Estate

Xuesong You

University of Pennsylvania - Wharton Risk Management and Decision Processes Center

Date Written: December 3, 2020

Abstract

Financing frictions may limit the risk management of businesses, increasing their vulnerability to
shocks. We examine business financing outcomes following Hurricane Harvey. Our analyses use
two novel datasets on private companies: the credit reports of 8,219 businesses and a survey of
273 local firms. We address two questions in our analyses. First, to what extent did Harvey cause
firms financial distress? Using their exact street addresses, we match businesses’ credit reports
with flood depths from Harvey in difference-in-differences estimations. Flooded firms fell behind
on their debt obligations, though these businesses avoided the most serious credit outcomes such
as bankruptcy. Only independent businesses show signs of distress; subsidiaries of larger firms
do not. Second, how did firms finance losses from Harvey? Firms were largely uninsured for
their losses and were often denied credit after Harvey. Many funded recovery through informal
means, such as friends and family financing. Our study highlights and quantifies the challenges
posed by financing frictions in the wake of a negative shock.

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

JEL Classification: D22, G32, G33, Q54

Suggested Citation

Collier, Benjamin and Powell, Lawrence and Ragin, Marc A. and Ragin, Marc A. and You, Xuesong, Financing Negative Shocks: Evidence from Hurricane Harvey (December 3, 2020). Available at SSRN: https://ssrn.com/abstract=3741812 or http://dx.doi.org/10.2139/ssrn.3741812

Benjamin Collier (Contact Author)

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

Lawrence Powell

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

Marc A. Ragin

University of Georgia ( email )

610 S Lumpkin Street
Moore-Rooker A417
Athens, GA 30602-6254
United States
7067132775 (Phone)

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

610 S Lumpkin Street
Moore-Rooker A417
Athens, GA 30602-6254
United States
7067132775 (Phone)

Xuesong You

University of Pennsylvania - Wharton Risk Management and Decision Processes Center ( email )

3819 Chestnut Street
Suite 130
Philadelphia, PA 19104
United States

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