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Number of creditors and the real effects of credit supply disruptions

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  • Ebrahimi, Sajad
  • Ebrahimnejad, Ali
  • Rastad, Mahdi

Abstract

This paper examines the role of bank-firm relationships in transmitting credit supply shocks to the real side of the economy in an emerging market. Using a hand-collected dataset for Iranian public companies, we exploit firms' exposure to a bank involved in a massive Ponzi scheme in 2011. We document a nearly 8 percentage point drop in annual employment growth rate for firms connected to the troubled bank following the credit dry-up caused by the scandal. We show that the magnitude of the effect on employment and investment is amplified by bank-firm relationship at least as much as by the financial constraint status found in previous studies. The results highlight the role of bank-firm relationships and the importance of access to multiple creditors in alleviating the consequences of credit supply disruptions.

Suggested Citation

  • Ebrahimi, Sajad & Ebrahimnejad, Ali & Rastad, Mahdi, 2023. "Number of creditors and the real effects of credit supply disruptions," Emerging Markets Review, Elsevier, vol. 55(C).
    • Handle: RePEc:eee:ememar:v:55:y:2023:i:c:s1566014123000110
    DOI: 10.1016/j.ememar.2023.101006
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    More about this item

    Keywords

    Credit supply channel; Embezzlement; Bank fraud; Bank-firm relationship; Number of creditors; Employment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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