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Financial fragility and growth prospects: credit rationing during the crisis

Author

Listed:
  • Giorgio Albareto

    (Bank of Italy)

  • Paolo Finaldi Russo

    (Bank of Italy)

Abstract

This paper analyzes firms� difficulties in accessing credit before and during the crisis, by focusing on two of their characteristics: financial fragility and growth prospects. Our econometric analysis indicates that fragile financial conditions were associated with a much higher than average probability of rationing, both before and during the crisis. High rates of growth in sales and investments, in value added per employee and in the propensity to export � indicators presumably linked to growth prospects � favoured access to credit in the period leading up to the financial crisis; during the crisis, instead, credit rationing was more widespread and less related to firms� potential growth. Lending relationships facilitated access to the credit market, especially for firms with better growth prospects; this result is consistent with the hypothesis that the banks which are more involved in firms� financing have better information and stronger incentives to use it.

Suggested Citation

  • Giorgio Albareto & Paolo Finaldi Russo, 2012. "Financial fragility and growth prospects: credit rationing during the crisis," Questioni di Economia e Finanza (Occasional Papers) 127, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_127_12
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2012-0127/QEF_127.pdf
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    References listed on IDEAS

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    1. Guiso, Luigi, 2003. "Small business finance in Italy," EIB Papers 10/2003, European Investment Bank, Economics Department.
    2. Stefania De Mitri & Giorgio Gobbi & Enrico Sette, 2010. "Relationship lending in a financial turmoil," Temi di discussione (Economic working papers) 772, Bank of Italy, Economic Research and International Relations Area.
    3. Guiso, Luigi, 1998. "High-tech firms and credit rationing," Journal of Economic Behavior & Organization, Elsevier, vol. 35(1), pages 39-59, March.
    4. Eugenio Gaiotti, 2011. "Credit availability and investment in Italy: lessons from the "Great Recession"," Temi di discussione (Economic working papers) 793, Bank of Italy, Economic Research and International Relations Area.
    5. Del Giovane, Paolo & Eramo, Ginette & Nobili, Andrea, 2011. "Disentangling demand and supply in credit developments: A survey-based analysis for Italy," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2719-2732, October.
    6. Ferrando, Annalisa & Griesshaber, Nicolas, 2011. "Financing obstacles among euro area firms: Who suffers the most?," Working Paper Series 1293, European Central Bank.
    7. Antonio Accetturo & Anna Giunta & Salvatore Rossi, 2011. "The Italian Firms between Crisis and the new Globalization," L'industria, Società editrice il Mulino, issue 1, pages 145-164.
    8. Valerio Vacca, 2011. "An unexpected crisis? Looking at pricing effectiveness of different banks," Temi di discussione (Economic working papers) 814, Bank of Italy, Economic Research and International Relations Area.
    9. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
    10. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Yaseen Ghulam, 2019. "SMEs Credit Conditions during the Financial Crisis in Europe," Prague Economic Papers, Prague University of Economics and Business, vol. 2019(1), pages 105-125.
    2. Giuseppe Ferrero & Andrea Nobili & Gabriele Sene, 2019. "Credit risk-taking and maturity mismatch: the role of the yield curve," Temi di discussione (Economic working papers) 1220, Bank of Italy, Economic Research and International Relations Area.
    3. repec:prg:jnlpep:v:preprint:id:672:p:1-21 is not listed on IDEAS
    4. International Monetary Fund, 2013. "Italy: Technical Note on the Financial Situation of Italian Households and Non-Financial Corporations and Risks to the Banking System," IMF Staff Country Reports 2013/348, International Monetary Fund.
    5. Guido de Blasio & Stefania De Mitri & Alessio D'Ignazio & Paolo Finaldi Russo & Lavina Stoppani, 2017. "Public guarantees on loans to SMEs: an RDD evaluation," Temi di discussione (Economic working papers) 1111, Bank of Italy, Economic Research and International Relations Area.
    6. Rodrigo Martín-García & Jorge Morán Santor, 2021. "Public guarantees: a countercyclical instrument for SME growth. Evidence from the Spanish Region of Madrid," Small Business Economics, Springer, vol. 56(1), pages 427-449, January.
    7. Claire Giordano & Marco Marinucci & Andrea Silvestrini, 2016. "Investment and investment financing in Italy: some evidence at the macro level," Questioni di Economia e Finanza (Occasional Papers) 307, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    credit rationing; relationship lending; financial fragility; growth prospects;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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