Financial Markets, Banks' Cost of Funding, and Firms' Decisions: Lessons from Two Crises

Pierluigi Balduzzi, Emanuele Brancati and Fabio Schiantarelli

No 5669, CESifo Working Paper Series from CESifo

Abstract: We test whether adverse changes to banks’ market valuations during the financial and sovereign debt crises, and the associated increase in banks’ cost of funding, affected firms’ real decisions. Using new data linking over 3,000 non-financial Italian firms to their bank(s), we find that increases in banks’ CDS spreads, and decreases in their equity valuations, resulted in lower investment, employment, and bank debt for younger and smaller firms. Importantly, these effects dominate those of banks’ balance-sheet variables. We also show that higher CDS spreads led to lower aggregate investment, employment, and a less efficient resource allocation.

Keywords: financial crisis; sovereign debt crisis; credit default swaps; investment; employment (search for similar items in EconPapers)
JEL-codes: E22 E24 E44 G01 G21 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp5669.pdf (application/pdf)

Related works:
Journal Article: Financial markets, banks’ cost of funding, and firms’ decisions: Lessons from two crises (2018)
Working Paper: Financial Markets, Banks' Cost of Funding, and Firms' Decisions: Lessons from Two Crises (2016)
Working Paper: Financial Markets, BanksÕ Cost of Funding, and FirmsÕ Decisions: Lessons from Two Crises (2014)
Working Paper: Financial Markets, Banks' Cost of Funding, and Firms' Decisions: Lessons from Two Crises (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5669

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().