Bank credit, liquidity and firm-level investment: are recessions different?

Ines Buono and Sara Formai ()
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Sara Formai: Bank of Italy

No 1239, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: How do bank credit supply shocks affect firms' investment decisions? We use time-varying data on Italian firms and banks to disentangle shocks to the credit supply using bank mergers and acquisitions as an instrumental variable. We find that credit constraints can hamper the ability of firms to invest. Moreover, while firms normally tend to use liquidity as a substitute for bank credit, they do not do so during recessions, a fact that amplifies the cutback on productive investment following a bank credit supply shock.

Keywords: Corporate investments; financing constraints; Mergers and Acquisitions (search for similar items in EconPapers)
JEL-codes: G01 G31 G32 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-fdg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1239_19

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