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Market finance as a spare tyre? Corporate investment and access to bank credit in Europe

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  • Andersson, Malin
  • Maurin, Laurent
  • Rusinova, Desislava

Abstract

We estimate a FAVAR with Bayesian techniques in order to investigate the impact of loan supply conditions on euro area corporate investment and its financing structure. We identify shocks to overall demand and loan supply with sign and impact restrictions. Although tightened financial conditions have adversely impacted corporate investment during and after the sovereign debt crisis, the resulting impediments in loan supply, illustrated by lower loan volumes and higher spreads, have been partly alleviated by strengthened corporate debt issuance. We show that (1) part of the protracted increase in debt to loan ratio since the crisis reflects bottlenecks in the provision of bank credit and (2) the tightened loan supply has been more adverse for small corporations with limited market access. Overall, our analysis of macro-financial developments suggests the need for policy actions to deepen the European corporate debt market and enhance market access for smaller corporates. JEL Classification: E22, E66, G21

Suggested Citation

  • Andersson, Malin & Maurin, Laurent & Rusinova, Desislava, 2021. "Market finance as a spare tyre? Corporate investment and access to bank credit in Europe," Working Paper Series 2606, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20212606
    Note: 427284
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    1. Harasztosi, Péter & Maurin, Laurent & Pál, Rozália & Revoltella, Debora & van der Wielen, Wouter, 2022. "Firm-level policy support during the crisis: So far, so good?," International Economics, Elsevier, vol. 171(C), pages 30-48.

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    More about this item

    Keywords

    corporate debt issuance; FAVAR model; financing structure; size spread; small and medium size corporates;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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