Survive Another Day: Using Changes in the Composition of Investments to Measure the Cost of Credit Constraints

Luis Garicano and Claudia Steinwender

The Review of Economics and Statistics, 2016, vol. 98, issue 5, 913-924

Abstract: We introduce a novel empirical strategy to measure the size of credit shocks. Theoretically, we show that credit shocks reduce the value of long-term relative to short-term investments. Empirically, we can therefore compare the reduction of long-term relative to short-term investments within firms, allowing for firm-times-year fixed effects. Using Spanish firm-level data, we estimate the credit crunch to be equivalent to an additional tax rate of around 11% on the longest-lived capital. To pin down credit constraints as the underlying cause, we apply triple-differences strategies using foreign ownership or precrisis debt maturity.

Date: 2016
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Working Paper: Survive another day: using changes in the composition of investments to measure the cost of credit constraints (2016)
Working Paper: Survive Another Day: Using Changes in the Composition of Investments to Measure the Cost of Credit Constraints (2013)
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