The role of bank credit allocation: Evidence from the Spanish economy

This paper investigates the determinants of bank credit allocation in Spain from 1999 to 2014, studying in particular the relation between bank credit and total assets in firms balance sheets. The main finding of the paper is that the allocation of bank credit to firms is strongly affected by firms’ size. We show that the amount of bank credit accumulated by a company is more that proportional than its total assets. This leaded in Spain to a notable concentration of bank credit in the hands of the biggest companies of the country. We also find that during the Spanish boom, from 1999 to 2007, bank credit sharply shifted from manufacturing to construction industry and in particular to the biggest companies of the last sector. In the same period, the concentration of bank credit continuously raised, reaching its peak in conjunction with the crisis of 2008. This process increased the leverage of big firms (especially in the construction sector), many of which defaulted during the crisis. The estimation of parametric and semiparametric selection models confirms our findings. Overall, paper’s results raise queries about the correct channelling of bank credit into the economy and about its consequences.