In following the Business History Conference call to explore diverse ways that businesses have coped with disruption, the current research studies the impact that the stock market crash of 1929 had on the solvency of publicly traded firms in the U.S. as opposed to the lengthier Great Depression that followed. More specifically, this paper uses archival research from the Wall Street Journal Database to document the negative fallout from this exogenous shock.
In the year running from October to 1929 to October 1930, the Wall Street Journal published articles on 54 publicly traded firms that filed for bankruptcy protection in an array of industries, from the staid (radio) to the innovative (airlines). An interesting finding in this set of bankrupt firms was the percentage of filings that were involuntary in nature, a type of bankruptcy petition that is extremely rare in the 21st Century. Theoretically, this is interesting since most management research focuses on the effect that regulation has upon corporate choice. The bankruptcies that followed the stock market crash of 1929, however, could be viewed as the opposite in that government amended the Bankruptcy Act of 1898 because of the maldistributions seen in the involuntary bankruptcies covered in this paper. The Chandler Amendment (1938) accomplished, or at least attempted to, two issues with corporate bankruptcies. First, it sought to even the distributions to corporate creditors. Secondly, it sought to make the courts more efficient for voluntary petitions.
The paper, therefore, has three contributions, namely (i) to document the immediate casualties of the stock market crash as opposed to the Great Depression, (ii) to cover in detail the more important filings from this 12 month period and (iii) to explain the legislative change to bankruptcy law from the experience of the petitioners during this time frame.