The Anatomy of a Credit Supply Shock: Evidence from an Internal Credit Market

73 Pages Posted: 8 Feb 2014 Last revised: 14 Nov 2017

Date Written: March 17, 2016

Abstract

We investigate how financial contracting interacts with lending channel effects by tracing the anatomy of a credit supply shock using micro-level data from a multinational bank. Borrowers with stronger lending relationships, higher non-lending revenues, and those that pledge collateral, especially outside assets and real estate, experience less credit rationing. Consistent with a tightening of financing constraints post shock, borrower composition shifts toward larger and less risky firms, and loans exhibit higher collateralization rates. Our analysis highlights the value of relationships and suggests that relationship banking is a channel through which borrowers can mitigate lending channel effects.

Keywords: Relationship lending, Credit shocks, Financing constraints, Collateral

Suggested Citation

Liberti, Jose Maria and Sturgess, Jason, The Anatomy of a Credit Supply Shock: Evidence from an Internal Credit Market (March 17, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2392013 or http://dx.doi.org/10.2139/ssrn.2392013

Jose Maria Liberti

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Jacobs 4203
Evanston, IL 60208
United States
(847) 491-5861 (Phone)
(847) 491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/liberti_jose.aspx

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
(312) 362-8739 (Phone)
(312) 362-6566 (Fax)

Jason Sturgess (Contact Author)

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

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