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Credit constraints, firm investment and employment: Evidence from survey data

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  • García-Posada Gómez, Miguel

Abstract

This paper assesses the impact of credit constraints on investment, inventories and employment using a large sample of firms from 12 European countries for the period 2014–2017. The data come from the Survey on the Access to Finance of Enterprises (SAFE), which contains direct information on the financial constraints faced by non-financial companies. The key identification challenge is a potential omitted variable bias, as firms with poor investment and growth opportunities may have a higher probability of being credit constrained. This problem is addressed by using an instrumental variable that is based on the allocation rule of the ECB's Targeted Longer-Term Refinancing Operations (TLTROs). The main findings suggest that credit constraints have strong negative effects on investment in fixed assets, while they have no impact on employment or inventories. Unconventional monetary policy may spur investment by reducing the incidence of credit constraints, especially in the case of large and old firms.

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  • García-Posada Gómez, Miguel, 2019. "Credit constraints, firm investment and employment: Evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 121-141.
    • Handle: RePEc:eee:jbfina:v:99:y:2019:i:c:p:121-141
    DOI: 10.1016/j.jbankfin.2018.11.016
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    More about this item

    Keywords

    Credit constraints; Investment; Employment; Inventories; Instrumental variables; TLTRO;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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