The Real Side of the Financial Crisis: Banks' Exposure, Flight to Quality and Firms' Investment Rate
Emanuele Brancati ()
No 302, CEIS Research Paper from Tor Vergata University, CEIS
The paper takes advantage of the Italian experience in the Lehman crisis to test the effects of banking shocks on the real decisions of client firms. The analysis exploits plant-level data and models the magnitude of the shock with banks' pre-crisis holding of Dollar-denominated assets and liabilities. After controlling for demand conditions I document the existence of a bank-lending channel affecting the investment rate, the amount of borrowing, and the probability of financial constraints of client firms. This transmission mechanism is characterized by a flight to quality away from risky borrowers, with stronger effects for undercapitalized and illiquid banks or financial institutions that depend more upon bank-based sources of finance.
Keywords: Financial crises; banks; lending; investment; flight to quality; financial constraints (search for similar items in EconPapers)
JEL-codes: E22 G01 G21 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2013-12-18, Revised 2014-03-20
New Economics Papers: this item is included in nep-ban and nep-mac
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