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The employment consequences of SMEs’ credit constraints in the wake of the Great Recession

David Cornille, Francois Rycx () and Ilan Tojerow ()

No 2117, Working Paper Series from European Central Bank

Abstract: This article takes advantage of access to confidential matched bank-firm data relative to the Belgian economy to investigate how employment decisions of small- and medium-sized enterprises (SMEs) have been affected by credit constraints in the wake of the Great Recession. Variability in banks’ financial health is used as an exogenous determinant of firms’ access to credit. Estimates suggest that SMEs borrowing money from pre-crisis less healthy banks were significantly more likely to be affected by a credit constraint and, in turn, to adjust their labour input downwards than pre-crisis clients of more healthy banks. Yet, findings also indicate that employment consequences of credit shortages have been essentially detrimental for SMEs experiencing a negative demand shock or facing severe product market competition. Finally, results show that credit-constrained SMEs adjusted their workforce significantly more at the extensive margin than their non-constrained counterparts, but also that they relied more intensively on temporary layoff schemes. JEL Classification: D22, G01, G21, J21, J23

Keywords: Belgium; credit constraints; employment; matched bank-firm data; Wage Dynamics Network (WDN) (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent and nep-lma
Date: 2017-12
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172117

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