The Impact of Credit Shocks: Micro versus Small Firms

Megha Patnaik

Discussion Papers from Indian Statistical Institute, Delhi

Abstract: Using novel data from the leading online accounting software in the United States with millions of financial transactions for small businesses, I measure firms’ responses to shocks in credit supply during the Great Recession. Bank failures are associated with declines in credit for small firms but not micro firms. In contrast, movements in house prices are associated with credit changes for micro firms but not small firms. This suggests differences in how firms overcome asymmetric information, with micro firms depending more on housing collateral and small firms on lending relationships, consistent with associated costs to lenders

Pages: 43 pages
Date: 2017-10
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