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

Authors

Juan M. Sánchez

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2016-22 | December 1, 2016

Gertler and Gilchrist (1994) provide seminal evidence for the prevailing view that adverse shocks are propagated via credit constraints. Under this view, the deep recession that followed the 2008 financial crisis is often interpreted as the propagation of the initial “credit shock.” Following Gertler and Gilchrist (1994)’s methodology, we study the behavior of small and large firms during the episodes of credit disruption and extend the analysis to the 2008 financial crisis and NBER-dated recessions. We find that large firms’ short-term debt and sales contracted relatively more than those of small firms during the 2008 financial crisis and during most recessions since 1969. These results, which we show are robust to changes in the business cycle dating procedure, suggest that an alternative view may be needed to understand the prolonged recession following the 2008 financial crisis.

Article Citation

Sánchez, Juan M., and Marianna Kudlyak. 2016. “Revisiting the Behavior of Small and Large Firms during the 2008 Financial Crisis,” Federal Reserve Bank of San Francisco Working Paper 2016-22. Available at https://doi.org/10.24148/wp2016-22

About the Author
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Marianna Kudlyak is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Marianna Kudlyak