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Does Credit Crunch Investment Down? New Evidence on the Real Effects of the Bank-Lending Channel

Federico Cingano, Francesco Manaresi () and Enrico Sette

Review of Financial Studies, 2016, vol. 29, issue 10, 2737-2773

Abstract: We quantify the real effects of the bank-lending channel exploiting the dramatic liquidity drought in interbank markets that followed the 2007 financial crisis as a source of variation in credit supply. Using a large sample of matched firm–bank data from Italy, we find had the interbank market not collapsed, investment expenditure would have been more than 20% higher and would have increased by around 30 cents per additional euro of available credit at the average firm. We also find that credit shocks affect the firm's value added, employment and input purchases, and propagate through firms' trade credit chains.Received July 8, 2014; accepted April 12, 2016 by Editor Andrew Karolyi.

Date: 2016
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Working Paper: Does credit crunch investments down? New evidence on the real effects of the bank-lending channel (2013) Downloads
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Review of Financial Studies is currently edited by Itay Goldstein

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