Rebuilding after Disaster Strikes: How Local Lenders Aid in the Recovery

33 Pages Posted: 13 Nov 2014 Last revised: 21 Oct 2015

See all articles by Kristle Romero Cortés

Kristle Romero Cortés

UNSW Australia Business School, School of Banking and Finance

Date Written: November 12, 2014

Abstract

Using detailed employment data on firm age and size, I show that the presence of local finance improves job retention and creation at young and small firms. I use natural disasters and regulatory guidance to disentangle the effects of credit supply and demand. I find that an additional standard deviation of local finance offsets the negative effects of the disaster and can lead to 1 to 2% higher employment growth at either young or small firms. Banks increase lending but are not borrowing against future lending, nor do they experience changes in default rates. These findings suggest that local lenders play an important and necessary role in job creation in the economy.

Keywords: quarterly workforce indicators, natural disasters

JEL Classification: G21, O47

Suggested Citation

Cortés, Kristle Romero, Rebuilding after Disaster Strikes: How Local Lenders Aid in the Recovery (November 12, 2014). FRB of Cleveland Working Paper No. 14-28, Available at SSRN: https://ssrn.com/abstract=2523411 or http://dx.doi.org/10.2139/ssrn.2523411

Kristle Romero Cortés (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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