Credit Supply and Business Investment During the Great Recession: Evidence from Public Records of Equipment Financing

42 Pages Posted: 2 Dec 2012

Date Written: November 26, 2012

Abstract

It is often asserted that the financial crisis of 2008 caused a recession in the real economy by restricting the supply of credit to firms and households, but this view has been questioned by a number of researchers. This paper uses novel data on lending relationships from Uniform Commercial Code filings of loans secured by business equipment to measure how lender distress affected firm-level investment outcomes after the crisis. In specifications that compare firms in the same county-industry-size cell, I find that firms that were dependent on lenders that experienced the most distress during the crisis financed significantly less equipment than average firms after the crisis, despite a considerable amount of substitution toward non-distressed lenders. Variation across lenders can account for a 17% decline in aggregate equipment financing, or about one-third of the total decline in financing in the sample of small businesses used in the paper.

Keywords: Financial crisis, credit supply, bank lending, capital expenditures, equipment financing

JEL Classification: G31, G21, E22

Suggested Citation

Edgerton, Jesse, Credit Supply and Business Investment During the Great Recession: Evidence from Public Records of Equipment Financing (November 26, 2012). Available at SSRN: https://ssrn.com/abstract=2183379 or http://dx.doi.org/10.2139/ssrn.2183379

Jesse Edgerton (Contact Author)

JP Morgan ( email )

270 Park Avenue
New York, NY 10027
United States

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