The riskiness of credit allocation and financial stability

Luis Brandão-Marques, Qianying Chen, Claudio Raddatz, Jérôme Vandenbussche and Peichu Xie
Authors registered in the RePEc Author Service: Luis Brandao Marques

Journal of Financial Intermediation, 2022, vol. 51, issue C

Abstract: Using firm-level data for 42 countries over 1991-2016, we show that the extent to which credit flows to relatively risker firms—which we label riskiness of credit allocation—is a distinct dimension of the credit cycle that helps predict downside risks to GDP growth and financial stress episodes, one to three years ahead, even after controlling for the magnitude of credit expansions and for financial conditions. The riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment, but its predictive power does not simply come from its relation to these correlates of future financial stress.

Keywords: Corporate debt; Credit allocation; Credit risk; Financial leverage; Financial vulnerability; Investor sentiment; Financial crises; Financial stability (search for similar items in EconPapers)
JEL-codes: E44 E47 G01 G21 G23 G28 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Riskiness of Credit Allocation and Financial Stability (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:51:y:2022:i:c:s104295732200033x

DOI: 10.1016/j.jfi.2022.100980

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