We analyze the relation between firms' exposure to exogenous business risk and their financing choices, based on a sample of firms for which we can measure such exposure. The results show that firms more exposed to exogenous risk use less debt financing. We also analyze the relation between the...

How does small-firm employment respond to exogenous labor productivity risk? We find that this depends on the capitalization of firms' local banks. The evidence comes from firms offering (quasi-) fixed employment to workers whose productivity depends on the weather. Weather risk reduces this...