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Reduced cross-border lending and financing costs of SMEs

Franziska Bremus and Katja Neugebauer

Journal of International Money and Finance, 2018, vol. 80, issue C, 35-58

Abstract: This paper investigates how the withdrawal of banks from their cross-border business impacted the borrowing costs of European firms since the crisis. We combine aggregate information on total and cross-border credit with firm-level survey data for the period 2010–2014. We find that the decline in cross-border lending led to a deterioration in the borrowing conditions of small firms. In countries with more pronounced reductions in cross-border credit inflows, the likelihood of a rise in firms’ external financing costs increased. This result is mainly driven by the interbank channel, which plays a crucial role in transmitting shocks to the real sector across borders.

Keywords: International banking; Firm finance; Credit constraints (search for similar items in EconPapers)
JEL-codes: F34 F36 G15 G21 (search for similar items in EconPapers)
Date: 2018
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