The banks that said no: banking relationships, credit supply and productivity in the United Kingdom

Jeremy Franklin, May Rostom and Gregory Thwaites

No 557, Bank of England working papers from Bank of England

Abstract: This paper uses a large firm-level data set of UK companies and information on their pre-crisis lending relationships to identify the causal links from changes in credit supply to the real economy following the 2008 financial crisis. Controlling for demand in the product market, we find that the contraction in credit supply reduced labour productivity, wages and the capital intensity of production at the firm level. Firms experiencing adverse credit shocks were also more likely to fail, other things equal. We find that these effects are robust, statistically significant and economically large, but only when instruments based on pre-crisis banking relationships are used. We show that banking relationships were conditionally randomly assigned and were strong predictors of credit supply, such that any bias in our estimates is likely to be small.

Keywords: Credit shock; financial frictions; productivity puzzle; firm-level data (search for similar items in EconPapers)
JEL-codes: D21 D22 D24 G21 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2015-10-09
New Economics Papers: this item is included in nep-ban, nep-bec and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0557

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