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The Home Bias and the Credit Crunch: A Regional Perspective

Author

Listed:
  • Andrea Filippo Presbitero

    (Universit… Politecnica delle Marche, MoFiR)

  • Gregory F. Udell

    (Kelly School of Business, Indiana University)

  • Alberto Zazzaro

    (Universit… Politecnica delle Marche, MoFiR)

Abstract

A major policy issue is whether troubles in the banking system re ected in the bankruptcy of Lehman Brothers in September 2008 have spurred a credit crunch and, if so, how and why its severity has been different across markets and firms. In this paper, we tackle this issue by looking at the Italian case. We take advantage of a dataset on a large sample of manufacturing firms, observed quarterly between January 2008 and September 2009. Thanks to detailed information about loan applications and lending decisions, we are able to identify the occurrence of a credit crunch in Italy which has been found to be harsher in provinces with a large share of branches owned by distantly-managed banks. Inconsistent with the flight to quality hypothesis, however, we do not find evidence that economically weaker and smaller firms suffered more during the crisis period than during tranquil periods. By contrast, we find that large and healthy firms, the segment of borrowers which, according to theoretical predictions, are cream-skimmed by distantly-headquartered banks, were more intensely hit by the credit tightening in functionally distant credit markets than in the ones populated by less distant banks. This last result is consistent with the hypothesis of a home bias on the part of nationwide banks.

Suggested Citation

  • Andrea Filippo Presbitero & Gregory F. Udell & Alberto Zazzaro, 2012. "The Home Bias and the Credit Crunch: A Regional Perspective," Mo.Fi.R. Working Papers 60, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  • Handle: RePEc:anc:wmofir:60
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    More about this item

    Keywords

    Banking; Credit crunch; Distance; Flight to quality; Home bias;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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