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Does Credit Crunch Investment Down? New Evidence on the Real Effects of the Bank-Lending Channel

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  • Federico Cingano
  • Francesco Manaresi
  • Enrico Sette

Abstract

We quantify the real effects of the bank-lending channel exploiting the dramatic liquidity drought in interbank markets that followed the 2007 financial crisis as a source of variation in credit supply. Using a large sample of matched firm–bank data from Italy, we find had the interbank market not collapsed, investment expenditure would have been more than 20% higher and would have increased by around 30 cents per additional euro of available credit at the average firm. We also find that credit shocks affect the firm's value added, employment and input purchases, and propagate through firms' trade credit chains.Received July 8, 2014; accepted April 12, 2016 by Editor Andrew Karolyi.

Suggested Citation

  • Federico Cingano & Francesco Manaresi & Enrico Sette, 2016. "Does Credit Crunch Investment Down? New Evidence on the Real Effects of the Bank-Lending Channel," The Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2737-2773.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:10:p:2737-2773.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhw040
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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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