Firms� financial fragility and credit allocation

Emilia Bonaccorsi di Patti () and Paolo Finaldi Russo ()
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Emilia Bonaccorsi di Patti: Bank of Italy

No 371, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In 2015 bank lending to larger firms expanded whereas it continued to contract for smaller ones; this gap is also observed for companies belonging to the same sector of economic activity or with similar budgetary conditions. Econometric estimates confirm that, taking into account a large number of firms� characteristics (profitability, liquidity, sales dynamics, capital expenditure, economic sector and geographical area), the contraction in lending was especially pronounced for micro-firms and for riskier companies. The greater financial fragility of micro-firms, particularly due to their higher indebtedness, accounts for more than 70 per cent of the difference in the annual growth rate of loans to large companies and about 40 of that to small and medium-sized enterprises. A non-negligible proportion of these gaps is not explained by the firms� characteristics considered in the analysis; it may instead reflect supply factors associated with a lower propensity on the part of some banks to finance small firms.

Keywords: credit risk; credit allocation; flight to quality; evergreening (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-sbm
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