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The role of bank credit allocation: Evidence from the Spanish economy

Author

Listed:
  • Marko Petrovic

    () (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)

  • Andrea Teglio

    () (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)

  • Simone Alfarano

    () (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)

Abstract

This paper investigates the determinants of bank credit allocation in Spain from 1999 to 2014, studying in particular the relation between bank credit and total assets in firms balance sheets. The main finding of the paper is that the allocation of bank credit to firms is strongly affected by firms’ size. We show that the amount of bank credit accumulated by a company is more that proportional than its total assets. This leaded in Spain to a notable concentration of bank credit in the hands of the biggest companies of the country. We also find that during the Spanish boom, from 1999 to 2007, bank credit sharply shifted from manufacturing to construction industry and in particular to the biggest companies of the last sector. In the same period, the concentration of bank credit continuously raised, reaching its peak in conjunction with the crisis of 2008. This process increased the leverage of big firms (especially in the construction sector), many of which defaulted during the crisis. The estimation of parametric and semiparametric selection models confirms our findings. Overall, paper’s results raise queries about the correct channelling of bank credit into the economy and about its consequences.

Suggested Citation

  • Marko Petrovic & Andrea Teglio & Simone Alfarano, 2016. "The role of bank credit allocation: Evidence from the Spanish economy," Working Papers 2016/17, Economics Department, Universitat Jaume I, Castellón (Spain).
  • Handle: RePEc:jau:wpaper:2016/17
    as

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    References listed on IDEAS

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    Cited by:

    1. Marko Petrovic & Bulent Ozel & Andrea Teglio & Marco Raberto & Silvano Cincotti, 2017. "Eurace Open: An agent-based multi-country model," Working Papers 2017/09, Economics Department, Universitat Jaume I, Castellón (Spain).

    More about this item

    Keywords

    Firms Size; Bank Credit; Loans; Distributions; Credit Allocation; Selection Model;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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