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Firms’ financial and real responses to credit supply shocks: Evidence from firm-bank relationships in Germany

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  • Dwenger, Nadja
  • Fossen, Frank M.
  • Simmler, Martin

Abstract

We investigate the importance of firm-bank relationships for the international transmission of bank distress to the real economy. Using a large panel of matched financial statements of firms of all sizes and their relationship banks in Germany, we find that banks with losses from proprietary trading activities during the 2007/8 financial crisis decreased their lending, and that their firm customers responded by reducing real investment and employment. We document how different types of firms partially offset reduced credit supply by resorting to alternative financing sources.

Suggested Citation

  • Dwenger, Nadja & Fossen, Frank M. & Simmler, Martin, 2020. "Firms’ financial and real responses to credit supply shocks: Evidence from firm-bank relationships in Germany," Journal of Financial Intermediation, Elsevier, vol. 41(C).
  • Handle: RePEc:eee:jfinin:v:41:y:2020:i:c:s1042957318300093
    DOI: 10.1016/j.jfi.2018.01.003
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    More about this item

    Keywords

    Financial crisis; International contagion; Credit crunch; Relationship lending; Investment; Employment;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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