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Finance and the Business Cycle: International, Inter-industry Evidence

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Author Info
Matias Braun (UCLA Anderson School of Management)
Borja Larrain (Harvard University)

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Abstract

By considering yearly production growth rates for several manufacturing industries in more than one hundred countries during (roughly) the last forty 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 more directly to the financial mechanism hypothesis. In particular, more dependent industries are more strongly affected in recessions when located in countries with poor financial contractibility, and when their assets are softer or less protective of financiers.

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Paper provided by EconWPA in its series Finance with number 0403001.

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Length: 41 pages
Date of creation: 10 Mar 2004
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Handle: RePEc:wpa:wuwpfi:0403001

Note: Type of Document - pdf; pages: 41
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Web page: http://129.3.20.41

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Related research
Keywords: Credit Channel Financial Development Asset Hardness

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Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
G0 - Financial Economics - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
  3. Anil K. Kashyap & Jeremy C. Stein, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June. [Downloadable!] (restricted)
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  5. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints," NBER Working Papers 7659, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June. [Downloadable!] (restricted)
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  9. Daron Acemoglu & Simon Johnson, 2003. "Unbundling Institutions," NBER Working Papers 9934, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Chevalier, Judith A & Scharfstein, David S, 1996. "Capital-Market Imperfections and Countercyclical Markups: Theory and Evidence," American Economic Review, American Economic Association, vol. 86(4), pages 703-25, September. [Downloadable!] (restricted)
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  13. Sharpe, Steven A, 1994. "Financial Market Imperfections, Firm Leverage, and the Cyclicality of Employment," American Economic Review, American Economic Association, vol. 84(4), pages 1060-74, September. [Downloadable!] (restricted)
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  14. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Oliver Hart, 2001. "Financial Contracting," Harvard Institute of Economic Research Working Papers 1924, Harvard - Institute of Economic Research. [Downloadable!]
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  18. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
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  20. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February. [Downloadable!] (restricted)
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  21. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures Of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 707-712, May. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arturo Galindo & Alejandro Micco, 2005. "Bank Credit to Small and Medium-Sized Enterprises: The Role of Creditor Protection," Working Papers Central Bank of Chile 347, Central Bank of Chile. [Downloadable!]
    Other versions:
  2. Klingebiel, Daniela & Kroszner, Randall S & Laeven, Luc, 2006. "Banking Crises, Financial Dependence and Growth," CEPR Discussion Papers 5623, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Raquel Lago González & Jose A. Lopez & Jesús Saurina, 2007. "Determinants of access to external finance: evidence from Spanish firms," Working Paper Series 2007-22, Federal Reserve Bank of San Francisco. [Downloadable!]
  4. Borja Larrain, 2004. "Financial development, financial constraints, and the volatility of industrial output," Public Policy Discussion Paper 04-6, Federal Reserve Bank of Boston. [Downloadable!]
  5. Roberto Álvarez & Holger Görg, 2007. "Multinationals as Stabilizers? Economic Crisis and Plant Employment Growth," IZA Discussion Papers 2692, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Ludvig Soderling, 2008. "Credit Cyclicality in Chile: A Cross-Country Perspective," IMF Working Papers 08/55, International Monetary Fund. [Downloadable!]
  7. Carlin, Wendy & Charlton, Andrew & Mayer, Colin, 2006. "Capital Markets, Ownership and Distance," CEPR Discussion Papers 5764, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Diego Comin & Thomas Philippon, 2005. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Working Papers 11388, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Wendy Carlin & Andrew Charlton & Colin Mayer, 2008. "Multinational Ownership and Subsidiary Investment," OFRC Working Papers Series 2008fe05, Oxford Financial Research Centre. [Downloadable!]
  10. Buch, Claudia M. & Döpke, Jörg & Strotmann, Harald, 2006. "Does trade openness increase firm-level volatility?," Discussion Paper Series 1: Economic Studies 2006,40, Deutsche Bundesbank, Research Centre. [Downloadable!]
  11. Claudia M. Buch & Martin Schlotter, 2008. "Regional Origins of Employment Volatility: Evidence from German States," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  12. Raphael Bergoeing & Andrés Hernando & Andrea Repetto, 2006. "Market Reforms and Efficiency Gains in Chile," Working Papers Central Bank of Chile 372, Central Bank of Chile. [Downloadable!]
    Other versions:
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