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Firms� financial fragility and credit allocation

Author

Listed:
  • Emilia Bonaccorsi di Patti

    (Bank of Italy)

  • Paolo Finaldi Russo

    (Bank of Italy)

Abstract

In 2015 bank lending to larger firms expanded whereas it continued to contract for smaller ones; this gap is also observed for companies belonging to the same sector of economic activity or with similar budgetary conditions. Econometric estimates confirm that, taking into account a large number of firms� characteristics (profitability, liquidity, sales dynamics, capital expenditure, economic sector and geographical area), the contraction in lending was especially pronounced for micro-firms and for riskier companies. The greater financial fragility of micro-firms, particularly due to their higher indebtedness, accounts for more than 70 per cent of the difference in the annual growth rate of loans to large companies and about 40 of that to small and medium-sized enterprises. A non-negligible proportion of these gaps is not explained by the firms� characteristics considered in the analysis; it may instead reflect supply factors associated with a lower propensity on the part of some banks to finance small firms.

Suggested Citation

  • Emilia Bonaccorsi di Patti & Paolo Finaldi Russo, 2017. "Firms� financial fragility and credit allocation," Questioni di Economia e Finanza (Occasional Papers) 371, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_371_17
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2017-0371/QEF_371.pdf
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    More about this item

    Keywords

    credit risk; credit allocation; flight to quality; evergreening;
    All these keywords.

    JEL classification:

    • 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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