Credit Misallocation During the European Financial Crisis

Fabiano Schivardi, Enrico Sette and Guido Tabellini

No 18139, Working Papers LuissLab from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate eciency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2008-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks cut credit to healthy firms (but not to zombie firms) and are more likely to prolong a credit relationship with a zombie firm, compared to stronger banks. (ii) In areas-sectors with more low-capital banks, zombie firms are more likely to survive and non-zombies are more likely to go bankrupt; (iii) Nevertheless, bank under-capitalization does not hurt the growth rate of healthy firms, while it allows zombie firms to grow faster. This goes against previous in uential findings that, we argue, face a serious identification problem. Thus, while banks with low capital can be an important source of aggregate ineffciency in the long run, their contribution to the severity of the great recession via capital misallocation was modest.

Keywords: Bank capitalization; zombie lending; capital misallocation (search for similar items in EconPapers)
JEL-codes: D23 E24 G21 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ban, nep-bec, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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http://www.luiss.it/RePEc/pdf/lleewp/18139.pdf (application/pdf)

Related works:
Journal Article: Credit Misallocation During the European Financial Crisis (2022)
Working Paper: Credit Misallocation During the European Financial Crisis (2018)
Working Paper: Credit Misallocation During the European Financial Crisis (2017)
Working Paper: Credit misallocation during the European financial crisis (2017)
Working Paper: Credit misallocation during the European financial crisis (2017)
Working Paper: Credit Misallocation During the European Financial Crisis (2017)
Working Paper: Credit Misallocation During the European Financial Crisis (2017)
Working Paper: Credit Misallocation During the European Financial Crisis (2017)
Working Paper: Credit Misallocation During the European Financial Crisis (2017)
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