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Bank lending to small firms: metamorphosis of a financing model

Paolo Finaldi Russo (), Valentina Nigro () and Sabrina Pastorelli
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Paolo Finaldi Russo: Bank of Italy
Valentina Nigro: Bank of Italy

No 1383, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper identifies idiosyncratic credit supply shocks across firm size before and after the 2008-2013 double-dip recession in Italy. Based on a fixed effects model, the empirical framework includes both single- and multiple-lender firms and relaxes the standard assumption of homogeneous credit supply across borrowers from the same bank. Results highlight that following the crisis banks notably tightened their corporate lending policies except towards large companies. A significant difference in credit supply arose between micro-firms and the others. The divide is wider for larger banks and for those with weaker balance sheets. This may reflect the greater difficulties on the part of these financial intermediaries in disbursing loans to firms with a significant degree of informational opacity and with high fixed costs compared with the low unit volume of operations. According to these findings, the shocks that hit the banking system during the crisis translated into a persistent change in credit standards, with an important shift in the supply of new loans from smaller to larger firms.

Keywords: bank lending channel; credit constraints; SME financing; bank risk-taking (search for similar items in EconPapers)
JEL-codes: G21 G3 G32 (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ent, nep-fdg and nep-sbm
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