Shocks Abroad, Pain at Home? Bank-Firm Level Evidence on the International Transmission of Financial Shocks
48 Pages Posted: 24 Jul 2013
Date Written: July 23, 2013
We study the international transmission of shocks from the banking to the real sector during the global financial crisis. For identification, we use matched bank-firm level data, including many small and medium-sized firms, in Eastern Europe and Central Asia. We find that internationally-borrowing domestic and foreign-owned banks contract their credit more during the crisis than domestic banks that are funded only locally. Firms that are dependent on credit and at the same time have a relationship with an internationally-borrowing domestic or a foreign bank (as compared to a locally-funded domestic bank) suffer more in their financing and real performance. Single-bank-relationship firms, small firms and firms with intangible assets suffer most. For credit-independent firms, there are no differential effects. Our findings suggest that financial globalization has intensified the international transmission of financial shocks with substantial real consequences.
Keywords: international transmission, firm real effects, foreign banks, international wholesale funding, credit shock
JEL Classification: G01, G21, F23, F36
Suggested Citation: Suggested Citation