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The Impact of a Stock Market Downturn on Corporate Financing Activities in Germany

  • Westerheide, Peter
  • Meitner, Matthias

The paper analyses the potential impact of stock market developments on lending behaviour from different perspectives. First we scrutinize the impact of stock market movements on the banks' and on the borrowers' balance sheets. Subsequently we estimate aggregate credit supply and demand functions including a stock market indicator as explanatory variable. The analysis reveals no major importance of the bank balance sheet channel for the relationship between stock market volatility and corporate financing possibilities of non-financial companies. A possible impact of stock market movements on banks' lending behaviour might be rooted in their impact on the balance sheets of corporate borrowers. The empirical results of the credit market analysis yield some confirming evidence for an impact of stock market developments. However, the results are not very stable and depend on the specification of the model and on the time period under observation.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 05-91.

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Date of creation: 2005
Date of revision:
Handle: RePEc:zbw:zewdip:4575
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  1. repec:rwi:dpaper:0006 is not listed on IDEAS
  2. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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