Heterogeneity and state dependence in firms’ access to credit: Microevidence from the euro area

Using detailed firm-level longitudinal data, this paper analyses the main factors affecting firms’ access to bank credit in eleven euro area countries over the period 2014-2018. We focus on firms’ loan demand behaviour and on banks’ actual credit granting decision, using alternative measures of financing constraints and controlling for endogenous sample selection and individual heterogeneity. Furthermore, we explicitly analyse the dynamics of firms’ access to credit and account for state dependence in loan demand and credit rationing probabilities. Empirical results show that small and informationally opaque businesses, with deteriorated public support and credit history, experience greater difficulties in accessing to bank loans. Moreover, we provide evidence of significant state dependence in access to credit over time. In particular, firms having already experienced credit restrictions in the past are more likely to face further financing constraints, while enterprises that repeatedly recur to external financing seem to have an easier access to credit. Finally, focusing on the subset of firms that actually need bank financing, we find that previous credit restrictions significantly reduce current demand probability, thus providing evidence of a significant credit discouragement effect.