Revisiting the Behavior of Small and Large Firms during the 2008 Financial Crisis

Kudlyak, Marianna; Sanchez, Juan M.

doi:10.24148/wp2016-22

Working Paper

Revisiting the Behavior of Small and Large Firms during the 2008 Financial Crisis

Abstract: Gertler and Gilchrist (1994) provide evidence for the prevailing view that adverse shocks are propagated via credit constraints of small firms. We revisit the behavior of small versus large firms during the episodes of credit disruption and recessions in the sample extended to cover the 2007-09 economic crisis. We find that large firms? short-term debt and sales contracted relatively more than those of small firms during the 2007-09 episode. Furthermore, the short-term debt of large firms also contracted relatively more in the previous tight money episodes if one takes into account the longer period that it takes for large firms? debt to reach its post-shock trough. Our findings challenge the view that propagation of shocks in the economy takes place via credit constraints of small firms.

JEL Classification: E32; E51; E52;

https://doi.org/10.24148/wp2016-22