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Does credit crunch investments down? New evidence on the real effects of the bank-lending channel

Author

Listed:
  • Federico Cingano

    (OECD/ELS, Paris, Bank of Italy)

  • Francesco Manaresi

    (Bank of Italy)

  • Enrico Sette

    (Bank of Italy)

Abstract

This paper shows evidence on the real effects of the bank lending channel exploiting the dramatic 2007 liquidity drought in interbank markets as a source of variation in banks' credit supply. For a large sample of Italian firms we combine information on firm-bank credit relationships, firms and banks balance sheet data, and estimate both the direct effect of the liquidity drought on the investment rate and the sensitivity to bank credit of investment (as well as of other firms outcomes) in 2007-10. We find that: (i) pre-crisis exposure to the interbank markets does predict banks subsequent credit supply (ii) banks exposure also has a significant direct impact on firms investment rate, accounting for more than 40% of the negative trend in investment observed in the sample; (iii) firms' investments are highly sensitive to bank credit: a 10 percentage point fall in credit growth reduces the investment rate by 8-14 points over four years, depending on the definition of the credit variable; (iv) credit shocks have a significant impact on broader economic activity, lowering firms' value added, employment and intermediate inputs purchases; we also find evidence of its propagation through a contraction in the supply of trade credit by firms.

Suggested Citation

  • Federico Cingano & Francesco Manaresi & Enrico Sette, 2013. "Does credit crunch investments down? New evidence on the real effects of the bank-lending channel," Mo.Fi.R. Working Papers 91, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  • Handle: RePEc:anc:wmofir:91
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bank Lending Channel; Corporate investments; Corporate liquidit; Financial crisis;
    All these keywords.

    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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