Credit Supply and (In)organic Growth

Abstract

This paper highlights the importance of distinguishing between organic and inorganic growth when measuring real effects of financial frictions. Exploiting a quasiexogenous positive shock to credit supply, we document that affected firms borrow larger amounts and exhibit stronger asset, employment, and sales growth. All growth effects, however, are inorganic, and the quality of the credit supply induced acquisition activity is low. We provide a method for adjusting for inorganic growth components empirically and argue that it is important to distinguish inorganic from organic growth in any study that analyzes real effects of credit supply.

Keywords: Inorganic Growth, Credit Supply, Real Effects, Securitization

JEL Classification: G21, G23, G32, G32