Credit-Supply Shocks and Firm Productivity in Italy

By Sebastian Dörr, Mehdi Raissi, Anke Weber

March 24, 2017

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Sebastian Dörr, Mehdi Raissi, and Anke Weber. Credit-Supply Shocks and Firm Productivity in Italy, (USA: International Monetary Fund, 2017) accessed September 19, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The Italian economy has been struggling with low productivity growth and bank balance sheet strains. This paper examines the implications for firm productivity of adverse shocks to bank lending in Italy, using a novel identification scheme and loan-level data on syndicated lending. We exploit the heterogeneous loan exposure of Italian banks to foreign borrowers in distress, and find that a negative shock to bank credit supply reduces firms' loan growth, investment, capital-to-labor ratio, and productivity. The transmission from changes in credit supply to firm productivity relates to labor market rigidities, which delay or distort the adjustment of firms' desired labor and capital allocations, and thereby reduce firms' productivity. Effects are stronger for firms with higher capital intensity and external financial dependence.

Subject: Bank credit, Banking, Credit, Economic theory, Financial institutions, Loans, Money, Production, Supply shocks, Total factor productivity

Keywords: Bank credit, Credit, Credit condition, Credit-supply shocks, Demand factor, Extent firm, Firm borrowing costs, Firm control, Firm level, Firm productivity, Forces firm, Italy, Labor market rigidities, Labor productivity, Loan, Loan growth, Loans, Productivity, Summary statistics, Supply shocks, Total factor productivity, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/067
Stock No:

WPIEA2017067
ISBN:

9781475588668
ISSN:

1018-5941

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