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Reduced cross-border lending and financing costs of SMEs

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 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; ES/K002309/1 (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-cfn
Date: 2018-02-01
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Published in Journal of International Money and Finance, 1, February, 2018, 80, pp. 35-58. ISSN: 0261-5606

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http://eprints.lse.ac.uk/84298/ Open access version. (application/pdf)

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Journal Article: Reduced cross-border lending and financing costs of SMEs (2018) Downloads
Journal Article: Reduced cross-border lending and financing costs of SMEs (2018) Downloads
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