Corporate investment and bank-dependent borrowers during the recent financial crisis

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe use the recent financial crisis period to analyse the effect of bank credit tightening on real firm investment. We derive a new set of credit tightening indexes from the ECB Bank Lending Survey. Combining these with annual balance sheet data from Germany, France, Italy, Spain, Belgium and Portugal, we exploit the heterogeneity in the dependence on bank finance of different industries to identify real effects of credit tightening. We show that in response to tightening, investment falls substantially more in bank-dependent industries. Banks had to be rescued and aggregate output and investment dropped significantly.There exists substantial evidence that banks reduced their willingness to extend credit to firms during this period. For instance, in the Bank Lending Survey of the European Central Bank, where senior loan officers of a representative sample of euro area banks are asked questions on developments regarding their lending policies, one can observe a significant tightening of credit around the time of the crisis. The question this paper tries to answer is whether the bank credit supply reductions reported by loan officers in the euro area led to reduced investment of firms. A reduction in lending by banks could ultimately lead firms to adapt their investment plans, as they need financing to exercise these. Our question is an important one, as it is conceivable that firms substitute other credit for bank credit when they are faced with a loan supply reduction of banks. For instance, firms could issue more bonds. However, in a bank-based economy as the euro area, this is less likely than in a more market-based economy as the US.To answer our question, we use a panel dataset of aggregated balance sheet data for different manufacturing industries from six euro area countries (Germany, France, Italy, Spain, Belgium, Portugal). For each manufacturing industry, in each country, we are able to track aggregate investment and aggregate indebtedness for three segments: small, medium and large firms. In addition, the dataset contains information on how much these industry segments are financed with bank debt and non-bank debt. The degree to which different industries use bank debt differs substantially both across industries and across countries. Some industries are more bank-dependent then others. In this paper, we use this difference in dependence on bank loans to identify whether the tightening reported by ...

Corporate debt and investment: A firm-level analysis for stressed euro area countries

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“…Moreover, changes in general risk sentiment may impact on the leverage target through both the supply of and demand for funds (see e.g. Amador and Nagengast, 2016;Buca and Vermeulen, 2017;Cingano et al, 2016;Storz et al, 2017). We will come back to these aspects in the empirical section.…”

Company Performance, Investment Decision, and Cyclical Sensitivity: A Dynamic Estimation on Company Microdata

“…Like Buca and Vermeulen (2012), we divide the economic cycle into three parts, with downturn, crisis, and upturn. The cyclical dummies are defined as year-on-year changes in sector-level value added.…”

“…Barlevy (2007) put forward a theoretical argument accompanied by empirical evidence from the United States that although there is a tendency for procyclical research and development (R&D) to be concentrated in booms, it would be optimal to concentrate R&D in recessions. More recently, Buca and Vermeulen (2012) looked at a sample of European firms and found that profitable investment opportunities have been foregone by bank-dependent firms, which faced credit constraints during the 2009 financial crisis. Ivashina and Scharfstein (2010) and Campello et al (2011) document heavy credit line drawdowns at the onset of the financial crisis due to firms' concern about the ability of banks to provide liquidity.…”

Microfinance, EU Structural Funds and Capacity Building for Managing Authorities

“…This phenomenon, known as credit crunch, affected the SMEs' capacity to raise the financial resources needed (Canton et al, 2010;Buca and Vermeulen, 2012;Buera et al, 2012;Iyer et al, 2013;Klein, 2014). The evidence commonly found in literature, in fact, agrees in indicating that the smaller enterprises -those with a lower turnover and a relatively young credit history that are most likely to resort to internal funds and operate with lower capital -were those mostly affected by the credit crunch, as they faced increasingly stringent credit constraints during the years of the financial crisis in Europe and their financial situation inevitably deteriorated (Castelli and Modina, 2010;Ferrando and Griesshaber, 2011;Dallago and Guglielmetti, 2012;Varum and Rocha, 2013).…”