Shattered rails, ruined credit: Financial fragility and railroad operations in the great depression

This article uses a new panel dataset to investigate the relationship between financial fragility and real activity on U.S. railroads during 1929-1940. Leverage had a negative effect on maintenance, within small firms only. Bankruptcy had a positive effect on maintenance and employment, within large firms only. Both leverage and bankruptcy effects were significantly larger during the worst depression years. Had all railroads been bankrupt during 1930-1933, GDP would have increased by 0.2 percent annually, and employment by 0.125 percent annually. Loans by the Reconstruction Finance Corporation had no impact on maintenance or employment.