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Don't stop me now: the impact of credit market fragmentation on firms' financing constraints

Franziska Bremus and Katja Neugebauer

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper investigates how the withdrawal of banks from their cross-border business impacted the borrowing costs of European firms since the crisis. We combine aggregate information on total and cross-border credit with firm-level survey data for the period 2010 - 2014. We find that the decline in cross-border lending led to a deterioration in the borrowing conditions of small firms. In countries with more pronounced reductions in cross-border credit inflows, the likelihood of a rise in firms’ external financing costs has increased. This result is mainly driven by the interbank channel, which plays a crucial role in transmitting shocks to the real sector across borders.

Keywords: International banking; firm finance; credit constraints. (search for similar items in EconPapers)
JEL-codes: F34 F36 G15 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-eur
Date: 2017-03
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Working Paper: Don't Stop Me Now: The Impact of Credit Market Fragmentation on Firms' Financing Constraints (2017) Downloads
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