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Identifying credit supply shocks with bank-firm data: methods and applications

Author

Listed:
  • Hans Degryse

    (KU Leuven, Halle Institute for Economic Research, and CEPR)

  • Olivier De Jonghe

    () (National Bank of Belgium and Tilburg University)

  • Sanja Jakovljevic

    () (Lancaster University)

  • Klaas Mulier

    () (Ghent University and National Bank of Belgium)

  • Glenn Schepens

    () (European Central Bank)

Abstract

Current empirical methods to identify and assess the impact of bank credit supply shocks rely strictly on multi-bank firms and ignore firms borrowing from only one bank. Yet, these single-bank firms are often the majority of firms in an economy and most prone to credit supply shocks. We propose and underpin an alternative demand control (using industry-location-size-time fixed effects) that allows identifying timevarying cross-sectional bank credit supply shocks using both single- and multi-bank firms. Using matched bank-firm credit data from Belgium, we show that firms borrowing from banks with negative credit supply shocks exhibit lower financial debt growth, asset growth, investments, and operating margin growth. Positive credit supply shocks are associated with bank risk-taking behaviour at the extensive margin. Importantly, to capture these effects it is crucial to include the single-bank firms when identifying the bank credit supply shocks.

Suggested Citation

  • Hans Degryse & Olivier De Jonghe & Sanja Jakovljevic & Klaas Mulier & Glenn Schepens, 2018. "Identifying credit supply shocks with bank-firm data: methods and applications," Working Paper Research 347, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:201810-347
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    References listed on IDEAS

    as
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    Keywords

    credit supply identificationbank lendingcorporate investmentbank risk-taking;

    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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