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Finance and the Business Cycle: International, Inter‐Industry Evidence

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  • MATÍAS BRAUN
  • BORJA LARRAIN

Abstract

By considering yearly production growth rates for several manufacturing industries in more than 100 countries during (roughly) the last 40 years, we show that industries that are more dependent on external finance are hit harder during recessions. The observed difference in the behavior of industries is larger when financial frictions are thought to be more prevalent, linking the result directly to the financial mechanism hypothesis. In particular, more dependent industries are more strongly affected in recessions when they are located in countries with poor financial contractibility, and when their assets are softer or less protective of financiers.

Suggested Citation

  • Matías Braun & Borja Larrain, 2005. "Finance and the Business Cycle: International, Inter‐Industry Evidence," Journal of Finance, American Finance Association, vol. 60(3), pages 1097-1128, June.
    • Handle: RePEc:bla:jfinan:v:60:y:2005:i:3:p:1097-1128
    DOI: 10.1111/j.1540-6261.2005.00757.x
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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G0 - Financial Economics - - General

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