Abstract

http://ssrn.com/abstract=2083301
 
 

References (34)



 


 



The Real Effects of Credit Contractions: A Firm-Level Analysis


Mohammad M. Rahaman


Saint Mary's University - Sobey School of Business

Varouj A. Aivazian


University of Toronto - Rotman School of Management

Ling Sun


Brock University - Department of Economics

June 12, 2012


Abstract:     
How costly are systemic credit contractions? We examine this question using episodes of systemic banking crises across many countries and compare firm sales, profitability and investment during crisis, post-crisis, and pre-crisis periods. We find that credit contractions are costly for firms and are of similar or higher magnitudes compared to costs of financial distress. The costs are higher for firms normally more reliant on the external capital market for their financing needs. Our results also show that externally dependent firms recover more quickly towards their pre-crisis levels of investment, and that the recovery is facilitated when the external capital market is "deep" or well developed. We find that the bank-lending channel mechanism is a more plausible explanation for the empirical effects of credit contractions than the borrowers' balance sheet channel.

Number of Pages in PDF File: 47

Keywords: External Financial Dependence, Systemic Liquidity Shock, Credit Contraction, Banking Crisis, Bank Lending Channel, Balance Sheet Effect

JEL Classification: E50, G01, G21, G30

working papers series


Download This Paper

Date posted: June 13, 2012  

Suggested Citation

Rahaman, Mohammad M. and Aivazian, Varouj A. and Sun, Ling, The Real Effects of Credit Contractions: A Firm-Level Analysis (June 12, 2012). Available at SSRN: http://ssrn.com/abstract=2083301 or http://dx.doi.org/10.2139/ssrn.2083301

Contact Information

Mohammad M. Rahaman (Contact Author)
Saint Mary's University - Sobey School of Business ( email )
Halifax, Nova Scotia B3H 3C3
Canada
Varouj A. Aivazian
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Department of Economics
Toronto, Ontario M5S 3E6
Canada
416-978-2375 (Phone)
416-978-5433 (Fax)
Ling Sun
Brock University - Department of Economics ( email )
500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada
Feedback to SSRN


Paper statistics
Abstract Views: 309
Downloads: 62
Download Rank: 201,910
References:  34

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.344 seconds