IDEAS home Printed from https://ideas.repec.org/p/eie/wpaper/1704.html
   My bibliography  Save this paper

Credit Misallocation During the European Financial Crisis

Author

Listed:
  • Fabiano Schivardi

    (LUISS University, EIEF and CEPR)

  • Enrico Sette

    (Bank of Italy)

  • Guido Tabellini

    (Bocconi University, IGIER, CEPR, CES-Ifo, CIFAR)

Abstract

Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2008-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks cut credit to healthy firms (but not to zombie firms) and are more likely to prolong a credit relationship with a zombie firm, compared to stronger banks. (ii) In areas-sectors with more low-capital banks, zombie firms are more likely to survive and non-zombies are more likely to go bankrupt; (iii) Nevertheless, bank under-capitalization does not hurt the growth rate of healthy firms, while it allows zombie firms to grow faster. This goes against previous influential findings that, we argue, face a serious identification problem. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocation was modest.

Suggested Citation

  • Fabiano Schivardi & Enrico Sette & Guido Tabellini, 2017. "Credit Misallocation During the European Financial Crisis," EIEF Working Papers Series 1704, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2018.
  • Handle: RePEc:eie:wpaper:1704
    as

    Download full text from publisher

    File URL: http://www.eief.it/eief/images/WP_17.4.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gita Gopinath & Şebnem Kalemli-Özcan & Loukas Karabarbounis & Carolina Villegas-Sanchez, 2017. "Capital Allocation and Productivity in South Europe," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 1915-1967.
    2. Mariassunta Giannetti & Andrei Simonov, 2013. "On the Real Effects of Bank Bailouts: Micro Evidence from Japan," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(1), pages 135-167, January.
    3. Acharya, Viral V & Eisert, Tim & Eufinger, Christian & Hirsch, Christian, 2017. "Whatever it takes: The Real Effects of Unconventional Monetary Policy," CEPR Discussion Papers 12005, C.E.P.R. Discussion Papers.
    4. Elisa Gamberoni & Claire Giordano & Paloma Lopez-Garcia, 2016. "Capital and labour (mis)allocation in the euro area: Some stylized facts and determinants," Questioni di Economia e Finanza (Occasional Papers) 349, Bank of Italy, Economic Research and International Relations Area.
    5. Rajkamal Iyer & José-Luis Peydró & Samuel da-Rocha-Lopes & Antoinette Schoar, 2014. "Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007--2009 Crisis," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 347-372, January.
    6. Fabio Schiantarelli & Massimiliano Stacchini & Philip E. Strahan, 2017. "Bank quality, judicial efficiency and borrower runs: loan repayment delays in Italy," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Uses of central balance sheet data offices' information, volume 45 Bank for International Settlements.
    7. Shin‐ichi Fukuda & Jun‐ichi Nakamura, 2011. "Why Did ‘Zombie’ Firms Recover in Japan?," The World Economy, Wiley Blackwell, vol. 34, pages 1124-1137, July.
    8. Claudio Borio & Enisse Kharroubi & Christian Upper & Fabrizio Zampolli, 2016. "Labour reallocation and productivity dynamics: financial causes, real consequences," BIS Working Papers 534, Bank for International Settlements.
    9. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
    10. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    11. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    12. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    13. Di Nola, Alessandro, 2015. "Capital Misallocation during the Great Recession," MPRA Paper 68289, University Library of Munich, Germany.
    14. Kilian Huber, 2018. "Disentangling the Effects of a Banking Crisis: Evidence from German Firms and Counties," American Economic Review, American Economic Association, vol. 108(3), pages 868-898, March.
    15. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2013. "Credit within the Firm," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 211-247.
    16. Atif Mian & Amir Sufi & Francesco Trebbi, 2015. "Foreclosures, House Prices, and the Real Economy," Journal of Finance, American Finance Association, vol. 70(6), pages 2587-2634, December.
    17. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
    18. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    19. Kyoji Fukao & Hyeog Ug Kwon, 2006. "Why Did Japan'S Tfp Growth Slow Down In The Lost Decade? An Empirical Analysis Based On Firm‐Level Data Of Manufacturing Firms," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 195-228, June.
    20. Jean-Noël Barrot & Julien Sauvagnat, 2016. "Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1543-1592.
    21. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    22. Alan Ahearne & Naoki Shinada, 2005. "Zombie firms and economic stagnation in Japan," International Economics and Economic Policy, Springer, vol. 2(4), pages 363-381, December.
    23. Asim Ijaz Khwaja & Atif Mian, 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," American Economic Review, American Economic Association, vol. 98(4), pages 1413-1442, September.
    24. Laura Blattner & Luisa Farinha & Francisca Rebelo, 2017. "When Losses Turn Into Loans: The Cost of Undercapitalized Banks," 2017 Papers pbl215, Job Market Papers.
    25. repec:sls:ipmsls:v:32:y:2017:7 is not listed on IDEAS
    26. Ugo Albertazzi & Domenico J. Marchetti, 2010. "Credit supply, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman," Temi di discussione (Economic working papers) 756, Bank of Italy, Economic Research and International Relations Area.
    27. Virgiliu Midrigan & Daniel Yi Xu, 2014. "Finance and Misallocation: Evidence from Plant-Level Data," American Economic Review, American Economic Association, vol. 104(2), pages 422-458, February.
    28. Enrica Detragiache & Paolo Garella & Luigi Guiso, 2000. "Multiple versus Single Banking Relationships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 55(3), pages 1133-1161, June.
    29. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
    30. Storz, Manuela & Koetter, Michael & Setzer, Ralph & Westphal, Andreas, 2017. "Do we want these two to tango? On zombie firms and stressed banks in Europe," Working Paper Series 2104, European Central Bank.
    31. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    32. repec:oup:ecpoli:v:33:y:2018:i:96:p:685-736. is not listed on IDEAS
    33. Alina Barnett & Ben Broadbent & Adrian Chiu & Jeremy Franklin & Helen Miller, 2014. "Impaired Capital Reallocation and Productivity," National Institute Economic Review, National Institute of Economic and Social Research, vol. 228(1), pages 35-48, May.
    34. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 819-863.
    35. Andrea Linarello & Andrea Petrella, 2017. "Productivity and Reallocation: Evidence from the Universe of Italian Firms," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 116-136, Spring.
    36. S. Calligaris & M. Del Gatto & F. Hassan & G.I.P. Ottaviano & F. Schivardi, 2016. "Italy’s Productivity Conundrum. A Study on Resource Misallocation in Italy," European Economy - Discussion Papers 2015 - 030, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    37. Müge Adalet McGowan & Dan Andrews & Valentine Millot & Thorsten BeckManaging Editor, 2018. "The walking dead? Zombie firms and productivity performance in OECD countries," Economic Policy, CEPR;CES;MSH, vol. 33(96), pages 685-736.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dan Andrews & Filippos Petroulakis, 2017. "Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe," OECD Economics Department Working Papers 1433, OECD Publishing.
    2. Blattner, Laura & Farinha, Luísa & Rebelo, Francisca, 2019. "When losses turn into loans: the cost of undercapitalized banks," Working Paper Series 2228, European Central Bank.
    3. Ana Fontoura Gouveia & Christian Osterhold, 2018. "Fear the walking dead: zombie firms, spillovers and exit barriers," Working Papers w201811, Banco de Portugal, Economics and Research Department.
    4. Keuschnigg, Christian & Kogler, Michael, 2018. "Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage," CEPR Discussion Papers 13375, C.E.P.R. Discussion Papers.
    5. Barbiero, Francesca & Popov, Alexander & Wolski, Marcin, 2018. "Debt overhang and investment efficiency," EIB Working Papers 2018/08, European Investment Bank (EIB).
    6. Andrea Linarello & Andrea Petrella & Enrico Sette, 2019. "Allocative Efficiency and Finance," Questioni di Economia e Finanza (Occasional Papers) 487, Bank of Italy, Economic Research and International Relations Area.
    7. Laura Blattner & Luisa Farinha & Francisca Rebelo, 2017. "When Losses Turn Into Loans: The Cost of Undercapitalized Banks," 2017 Papers pbl215, Job Market Papers.
    8. Suarez, Javier & Sánchez Serrano, Antonio, 2018. "Approaching non-performing loans from a macroprudential angle," Report of the Advisory Scientific Committee 7, European Systemic Risk Board.
    9. repec:psl:moneta:2018:23 is not listed on IDEAS
    10. Sara Calligaris & Massimo Del Gatto & Fadi Hassan & Gianmarco I P Ottaviano & Fabiano Schivardi & Tommaso MonacelliManaging Editor, 2018. "The productivity puzzle and misallocation: an Italian perspective," Economic Policy, CEPR;CES;MSH, vol. 33(96), pages 635-684.
    11. Francesco Manaresi & Nicola Pierri, 2018. "Credit supply and productivity growth," BIS Working Papers 711, Bank for International Settlements.
    12. Francesco Manaresi & Nicola Pierri, 2018. "Credit supply and productivity growth," Temi di discussione (Economic working papers) 1168, Bank of Italy, Economic Research and International Relations Area.
    13. Peleg Lazar, Sharon & Raviv, Alon, 2019. "The Risk Spiral: The Effects of Bank Capital and Diversification on Risk Taking," MPRA Paper 92134, University Library of Munich, Germany.
    14. Matteo Bugamelli & Francesca Lotti & Monica Amici & Emanuela Ciapanna & Fabrizio Colonna & Francesco D’Amuri & Silvia Giacomelli & Andrea Linarello & Francesco Manaresi & Giuliana Palumbo & Filippo Sc, 2018. "Productivity growth in Italy: a tale of a slow-motion change," Questioni di Economia e Finanza (Occasional Papers) 422, Bank of Italy, Economic Research and International Relations Area.
    15. repec:bis:bisqtr:1809g is not listed on IDEAS
    16. Simone Lenzu & Francesco Manaresi, 2019. "Sources and implications of resource misallocation: new evidence from firm-level marginal products and user costs," Questioni di Economia e Finanza (Occasional Papers) 485, Bank of Italy, Economic Research and International Relations Area.
    17. Claudio Borio & Piti Disyatat & Phurichai Rungcharoenkitkul, 2018. "What anchors for the natural rate of interest?," PIER Discussion Papers 98, Puey Ungphakorn Institute for Economic Research, revised Nov 2018.
    18. Storz, Manuela & Koetter, Michael & Setzer, Ralph & Westphal, Andreas, 2017. "Do we want these two to tango? On zombie firms and stressed banks in Europe," IWH Discussion Papers 13/2017, Halle Institute for Economic Research (IWH).
    19. Thiele, Carl-Ludwig, 2017. "Wege zu einem stabilen Finanzsystem: Regulatorisches Kurshalten oder radikaler Neuanfang?," IBF Paper Series 18-17, IBF – Institut für Bank- und Finanzgeschichte / Institute for Banking and Financial History, Frankfurt am Main.
    20. Keuschnigg, Christian & Kogler, Michael, 2017. "Schumpeterian Banks: Credit Reallocation and Capital Structure," CEPR Discussion Papers 12443, C.E.P.R. Discussion Papers.
    21. Bańbura, Marta & Albani, Maria & Ambrocio, Gene & Bursian, Dirk & Buss, Ginters & de Winter, Jasper & Gavura, Miroslav & Giordano, Claire & Júlio, Paulo & Le Roux, Julien & Lozej, Matija & Malthe-Thag, 2018. "Business investment in EU countries," Occasional Paper Series 215, European Central Bank.

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eie:wpaper:1704. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Facundo Piguillem). General contact details of provider: http://edirc.repec.org/data/einauit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.