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
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: Suggested Citation