The Heterogeneous Response of Domestic Sales and Exports to Bank Credit Shocks

Abstract

This paper analyzes the role of bank credit in firms' export performance. We use Italian bank-firm matched data and contribute to the existing literature by focusing on the link between bank-credit and exports in 'normal times ' (1997-2008) and measuring access to credit with hard data on the credit actually extended to firms by the banking system. We also establish the causal link that goes from bank credit to exports, exploiting bank mergers and acquisitions as a source of bank credit supply shocks. We find that short-run shocks to the supply of bank credit induce exporters to decrease their export flows, without affecting their domestic sales. On the other hand, non-exporters react by reducing their domestic sales.

Services trade and credit frictions: Evidence with matched bank–firm data

“…It follows that the IV estimate of the export elasticity to credit is 2.1 times larger than the OLS estimate. This attenuation bias helps us to get an idea of the relative importance of demand (in addition to supply determinants) of credit in shaping this result and it is consistent with the idea that firms with higher export growth have more internal funds at their disposal and, consequently, they demand less bank credit (on this point see also Buono and Formai, 2016).…”

“…The estimates also use a "within firm" estimation methodology, following Khwaja and Mian (2008); this last approach has been also exploited, among others, by Del Prete and Federico (2014) to estimate the impact of trade finance on the overall (goods and services) exports of Italian firms. Our work is also very close to Buono and Formai (2016), who analyzed the link between credit supply changes following 9 They consider the NACE Rev. 1 sections G, I and K for the year 2003.…”

“…Moreover, since our identification strategy (see section 5) relies on the heterogeneous reaction of banks in their lending decisions as a response to financial shocks, as in Khwaja and Mian (2008) and Jiménez et al (2010), we restrict the sample to firms that obtain loans from at least two banks. Multiple banking is quite common in Italy; for example, analyzing a long period before the Financial crisis, Buono and Formai (2016) find that each firm borrowed from 4 banks on average; multiple banking is common even among small firms and during the last years of crisis (Gobbi and Sette, 2015). All variables definitions are described in table A.2 in the Appendix.…”

“…Minetti and Zhu (2011) find that credit rationing reduced foreign sales of medium and big size manufactures by 38% in the year 2000. Using a dataset comprising manufacturing and services companies for a long period (1997-2011), Buono and Formai (2016) obtain, an elasticity of exports to credit supply shocks of 0.56.…”

Credit Constraints and Firm Productivity: Evidence from Italy

“…That is, θ 0 = θt + θ i and θ c 0 = θ c t + θ c i 20. In estimating(12) and (13), we include also firms having a single lending relationship.…”