Friends During Hard Times : Evidence from the Great Depression

Using a novel dataset of over 3,500 public and private firms, we construct the network of firm connections through executives and directors on the eve of the 1929 financial market crash. We find that more connected firms have 17% higher 10-year survival rates on average. Consistent with a role in facilitating access to working capital, the results are particularly strong for small firms, private firms, cash-poor firms, and firms located in counties with high bank suspension rates during the crisis. Moreover, connections to cash-rich firms that increase their accounts receivable during the peak of the crisis are most important for survival. Our results suggest that network connections can play a stabilizing role during a financial crisis by easing the flow of capital to constrained firms