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

Pierluigi Balduzzi, Emanuele Brancati and Fabio Schiantarelli

No 7872, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We test whether financial fluctuations affect firms' decisions, through their impact on banks' cost of funding. We exploit two shocks to Italian bank CDS spreads and equity valuations: the 2007-2009 financial crisis and the 2010-2012 sovereign debt crisis. Using newly available data linking over 3,000, mostly privately-held, non-financial firms to their bank(s), we find that increases in Italian banks' CDS spreads and decreases in their equity valuations lead younger and smaller firms to cut investment, employment, and borrowing. We conclude that financial market fluctuations affect even private firms' real decisions by affecting the costs of funds of their banks.

Keywords: volatility; credit-default swaps; banks; financial market shocks; investment; employment; lending (search for similar items in EconPapers)
JEL-codes: D92 G21 J23 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2013-12
New Economics Papers: this item is included in nep-ban and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Published - published in: Journal of Financial Intermediation, 2018, 36, 1-15

Downloads: (external link)
https://docs.iza.org/dp7872.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, Banks' Cost of Funding, and Firms' Decisions: Lessons from Two Crises (2015)
Working Paper: Financial Markets, BanksÕ Cost of Funding, and FirmsÕ Decisions: Lessons from Two Crises (2014)
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:iza:izadps:dp7872

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().