Working Paper: NBER ID: w22612
Authors: Benjamin L. Collier; Andrew F. Haughwout; Howard C. Kunreuther; Erwann O. Michel-Kerjan; Michael A. Stewart
Abstract: We examine businesses’ financial management of a rare, severe event using detailed firm-level data collected following Hurricane Sandy in the New York area. Credit played a prominent role in financing recovery; more negatively affected firms took on debt because of Sandy (38%) than received insurance payments (15%) in our data. Negatively affected firms were often credit constrained after the shock. While firms’ demand for insurance is often explained by financing frictions, we find that the most credit constrained firms after the event, younger firms and smaller firms, were the least likely to insure before it.
Keywords: financial management; infrequent shocks; Hurricane Sandy; insurance; credit demand
JEL Codes: D22; G22; G28; G32; L25; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negatively affected firms' demand for credit post-hurricane Sandy (G21) | increased likelihood of applying for credit (G51) |
| hurricane Sandy (H84) | increased debt levels among affected firms (G32) |
| firm characteristics (age and size) (L25) | insurance decisions (G52) |
| financial constraints (H60) | insurance uptake (G52) |
| negatively affected firms (D21) | higher likelihood to apply for credit (G51) |
| most financially constrained firms (G32) | least likely to insure before hurricane Sandy (G52) |