The transmission of bank credit conditions to firms-evidence from linked surveys

Annalisa Ferrando, Sarah Holton and Conor Parle

No 2975, Working Paper Series from European Central Bank

Abstract: Using a novel dataset linking firm level data from the Survey on Access to Finance of Enterprises (SAFE) and bank level data from the Bank Lending Survey (BLS), we explore how changes in credit standards pass through to firms at a granular level. We find that tighter credit standards decrease loan availability reported by firms, increase the likelihood they report access to finance as the worst problem and decrease their investment. After controlling for country-sector-time fixed effects that capture cyclical macroeconomic conditions, effects only remain for firms that need finance. Moreover, we find that a more diversified funding base insulates firms from the negative impacts of tighter credit standards on availability of bank loans and access to finance, although there is little evidence of such an effect forinvestment. Effects are asymmetric, with stronger impacts recorded for a tightening than an easing. Our results underscore the importance of demand conditions when interpreting the credit conditions and we thus propose a new indicator of demand adjusted credit standards at a euro area level, which can be used to analyse broader credit dynamics. JEL Classification: D22, E22, E52

Keywords: credit conditions; finance; firm-bank relationships; surveys (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-cfn and nep-fdg
Note: 235236
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242975

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