What Determines Borrowing Costs at the Firm-Level: Firm-Specific and Aggregate Information

Jarko Fidrmuc and Johann Scharler

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: We analyze the relationship between firm-specific shocks and aggregate fluctuations. In particular, profitability of firms affected by a negative shock worsens. To the extent that the banks cannot distinguish between aggregate and firm-specific profitability shocks, they will adjust interest rates for all borrowers. We test the influence of individual and bank specific data on lending rate using individual data for firm-bank relationships in Germany between 2005 and 2007. We provide the evidence that firm lending conditions depend on both individual and aggregate profitability. This result is consistent with the interpretation that banks use firm-specific as well as aggregate information when setting corporate lending rates.

JEL-codes: E32 G21 L14 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-bec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100322

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