Financial Markets, BanksÕ Cost of Funding, and FirmsÕ Decisions: Lessons from Two Crises

Pierluigi Balduzzi, Emanuele Brancati and Fabio Schiantarelli

No 1404, Working Papers CASMEF from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: We test whether financial fluctuations affect firmsÕ decisions through their impact on banksÕ cost of funding. We exploit two shocks to Italian banksÕ CDS spreads and equity valuations: the 2007Ð 2009 financial crisis and the 2010Ð2012 sovereign debt crisis. Using newly available data linking over 3,000, mostly privately held, non-financial firms to their bank(s), we find that increases in banksÕ CDS spreads, and decreases in their equity valuations, lead younger and smaller firms to cut investment, employment, and borrowing. We conclude that financial market fluctuations affect even private firms through their banksÕ cost of funding.

Keywords: Financial crisis; sovereign-debt crisis; banks; credit-default swaps; volatility; investment; employment; borrowing. (search for similar items in EconPapers)
JEL-codes: D92 G21 J23 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Financial markets, banks’ cost of funding, and firms’ decisions: Lessons from two crises (2018)
Working Paper: Financial Markets, Banks' Cost of Funding, and Firms' Decisions: Lessons from Two Crises (2016)
Working Paper: Financial Markets, Banks' Cost of Funding, and Firms' Decisions: Lessons from Two Crises (2015)
Working Paper: Financial Markets, Banks' Cost of Funding, and Firms' Decisions: Lessons from Two Crises (2013)
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