Credit-Supply Shocks and Firm Productivity in Italy

IMF Working Papers, March 24, 2017

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Credit-Supply Shocks and Firm Productivity in Italy

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Bibliographic details

• Authors: Sebastian Dörr, Mehdi Raissi
• Published: March 24, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475588668.001

Summary

• Paper examines implications for firm productivity of adverse shocks to bank lending in Italy using a novel identification scheme and loan-level data on syndicated lending.
• Exploits heterogeneous loan exposure of Italian banks to foreign borrowers in distress.
• Finds that a negative shock to bank credit supply reduces firms' loan growth, investment, capital-to-labor ratio, and productivity.
• Transmission from changes in credit supply to firm productivity relates to labor market rigidities that delay or distort adjustment of firms' desired labor and capital allocations, thereby reducing firms' productivity.
• Effects are stronger for firms with higher capital intensity and external financial dependence.

Key Findings

• Negative credit-supply shocks lead to:
  • Reduced firms' loan growth.
  • Reduced firms' investment.
  • Lower capital-to-labor ratio.
  • Lower firm productivity (total factor productivity and related measures).
• Amplification channels:
  • Labor market rigidities impede timely adjustment of labor and capital, worsening productivity outcomes.
• Heterogeneous impacts:
  • Larger adverse effects for firms with higher capital intensity.
  • Larger adverse effects for firms with greater external financial dependence.

Subjects and Keywords

• 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

Content in this bundle

• Credit-Supply Shocks and Firm Productivity in Italy, WP/17/67, March 2017
  • Credit-Supply Shocks and Firm Productivity in Italy, WP/17/67, March 2017 (Markdown version)
  • Credit-Supply Shocks and Firm Productivity in Italy, WP/17/67, March 2017 (PDF)