Investment slumps during financial crises: The real effects of credit supply

Alexandros Fakos (), Plutarchos Sakellaris and Tiago Tavares

Journal of Financial Economics, 2022, vol. 145, issue 1, 29-44

Abstract: Using new census-type data and a dynamic structural model, we study the effect of credit supply on investment by manufacturing firms during the Greek depression. Real factors (profitability, uncertainty, and taxes) account for only a fraction of the substantial drop in investment observed in the data. The reduction in credit supply has significant real effects, explaining 11–32% of the investment slump. We also find that exporting firms, which reduce investment and deleverage despite their improved profitability during the crisis, face a contraction in credit supply similar to that of non-exporters, suggesting that the credit-supply shock has a significant common component.

Keywords: Credit supply; Firm investment; Financial crises; Greek depression (search for similar items in EconPapers)
JEL-codes: D22 E44 G01 G3 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:1:p:29-44

DOI: 10.1016/j.jfineco.2022.04.004

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