In this article, we review the rapidly growing literature on the real effects of banks' corporate credit supply. We cover recent methodological advances and provide an in-depth survey of the existing evidence. The literature consistently shows that credit supply contractions lead to adverse real outcomes, but economic magnitudes vary across samples and identification strategies. This variation has become smaller in more recent work, using highly granular data. We further document heterogeneity in firm outcomes and show that the evidence is more ambiguous for expansionary shocks. Our analysis allows us to identify current knowledge gaps and worthwhile avenues for future research.

This paper reviews the rapidly growing literature on the real effects of bank credit supply fluctuations and identifies several worthwhile avenues for future research. In terms of the transmission of credit supply shocks into real effects, we suggest to further investigate the roles of (i) private borrower information, (ii) employment protection legislation, (iii) corporate governance, (iv) bank specialization, and (v) alternative financing sources. We also call for additional analyses of how these shocks affect (vi) investment efficiency, (vii) market structure, and (viii) the allocation of human capital, and emphasize the need for more evidence on (ix) the persistency, (x) asymmetry, and (xi) heterogeneity of their effects.JEL classification: E22, E24, E50, G21

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