Federal ID: 91-6001537
ISSN: 0022-1090 (Print) | 1756-6916 (Online)
Tania Babina, Diego García, and Geoffrey Tate
♦ Using a novel dataset of over 3,500 public and private firms, we construct the network of executive and director connections prior to the 1929 financial market crash. We find that more connected firms have 17% higher 10-year survival rates. Consistent with a working capital channel, the results are strongest for small, private, cash-poor firms, and firms located in counties with high bank suspension rates. Moreover, connections to cash-rich firms that increase accounts receivable matter the most. Our results suggest that network connections can play a stabilizing role during a financial crisis by easing the flow of capital to constrained firms.
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