Are Real Effects of Credit Supply Overestimated? Bias from Firms' Current Situation and Future Expectations

Michael Kleemann and Manuel Wiegand

No 192, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: This paper advocates for incorporating timely measures of firms' current situation and future expectations when disentangling real effects of credit supply from demand-side factors. Identification of supply-side effects in firm-level analyses often relies on balance sheet variables to control for firm heterogeneity. While balance sheets mirror past business, bias from contemporaneous and forward-looking firm-side factors may persist. Using German firm-level survey data from 2003 to 2011, we show that controlling for firms' current situation and future expectations reduces upward bias in estimated credit supply-side effects on firm-level production. This is particularly important when market data is unavailable for firms.

JEL-codes: E23 G21 L25 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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