Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms

45 Pages Posted: 5 Apr 2016 Last revised: 6 Mar 2019

See all articles by Marianna Kudlyak

Marianna Kudlyak

Federal Reserve Bank of San Francisco; Hoover Institution; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Juan M. Sánchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis; Federal Reserve Banks - Federal Reserve Bank of St. Louis

Multiple version iconThere are 2 versions of this paper

Date Written: March, 2016

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.

Keywords: Small and Large firms, credit constraints, Propagation of Shocks, Leverage

JEL Classification: E32, E51, E52

Suggested Citation

Kudlyak, Marianna and Sanchez, Juan M. and Sanchez, Juan M., Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms (March, 2016). FRB St. Louis Working Paper No. 2016-5, Available at SSRN: https://ssrn.com/abstract=2759223 or http://dx.doi.org/10.20955/wp.2016.005

Marianna Kudlyak (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

Hoover Institution ( email )

Stanford, CA 94305
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Juan M. Sanchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
68
Abstract Views
704
Rank
436,129
PlumX Metrics