Credit Supply Shocks: Financing Real Growth or Takeovers?

46 Pages Posted: 1 Dec 2015 Last revised: 2 Sep 2022

See all articles by Tobias Berg

Tobias Berg

Goethe University Frankfurt

Daniel Streitz

Halle Institute for Economic Research

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision

Date Written: August 1, 2022

Abstract

How do firms invest when financial constraints are relaxed? We document that firms affected by a large positive credit supply shock predominantly increase borrowing for transaction-based purposes. These treated firms have larger asset and employment growth rates; however, the growth stems entirely from increased takeover activity. Announcement returns indicate that the quality of the credit-supply-induced takeover activity is low. These results offer the possibility that credit-driven growth can simply reflect redistribution, rather than net gains in assets or employment.

Keywords: Inorganic Growth, Credit Supply, Real Effects, Securitization

JEL Classification: G21, G23, G32, G32

Suggested Citation

Berg, Tobias and Streitz, Daniel and Wedow, Michael, Credit Supply Shocks: Financing Real Growth or Takeovers? (August 1, 2022). BAFFI CAREFIN Centre Research Paper No. 2015-14, Available at SSRN: https://ssrn.com/abstract=2696906 or http://dx.doi.org/10.2139/ssrn.2696906

Tobias Berg (Contact Author)

Goethe University Frankfurt ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

Daniel Streitz

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision ( email )

Frankfurt a.M.
Germany

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