Family Firms, Soft Information and Bank Lending in a Financial Crisis
CSEF working paper no.357
33 Pages Posted: 5 Aug 2012 Last revised: 3 Nov 2016
Date Written: March 1, 2013
This paper studies how access to bank lending differed between family and non-family firms in the 2007-2009 financial crisis. The theoretical prediction is that family block-holders' incentive structure results in lower agency conflict in the borrower-lender relationship. Using highly detailed data on bank-firm relations, we exploit the reduction in bank lending in Italy following the crisis in October 2008. We find statistically and economically significant evidence that the contraction in credit for family firms was smaller than that for non-family firms. Results are robust to ex-ante observable differences between the two types of firms and to time-varying bank fixed effects. We further show that the difference in the amount of credit granted to family and non-family firms is related to an increased role for soft information in Italian banks' operations, following the Lehman Brothers' failure. Finally, by identifying a match between those banks and family firms, we can control for time-varying unobserved heterogeneity among the firms and validate the hypothesis that our results are supply driven.
Keywords: Family firms, Financial crisis, Soft information, Bank lending
JEL Classification: C81, D22, E44, G21, G32
Suggested Citation: Suggested Citation