2014-11 Credit relationships and business bankruptcy during the Great Depression
Credit relationships are sticky. Stickiness makes relationships beneﬁcial for borrowers in distress, but potentially problematic for them when lenders face distress. To examine stickiness in a time of distress, we exploit a natural experiment during the Depression that generated diﬀerences in banking outcomes. Using a new dataset drawn from Dun & Bradstreet and original bankruptcy ﬁlings, we show that greater distress increased exit by up to 16 percent. Distress did not generate more bankruptcies, but it changed the geographical distribution of creditors of bankrupt businesses. This is consistent with a contraction of business-to-business credit where there was greater distress.