Corporate Resilience to Banking Crises: The Roles of Trust and Trade Credit
55 Pages Posted: 19 Mar 2016 Last revised: 4 Mar 2018
Date Written: February 1, 2017
Are firms more resilient to systemic banking crises in economies with higher levels of social trust? Using firm-level data in 34 countries from 1990 through 2011, we find that liquidity-dependent firms in high-trust countries obtain more trade credit and suffer smaller drops in profits and employment during banking crises than similar firms in low-trust economies. The results are consistent with the view that when banking crises block the normal banking-lending channel, greater social trust facilitates access to informal finance, cushioning the effects of these crises on corporate profits and employment.
Keywords: Banking crises; Trade credit; Social trust; Corporate finance; Firm employment
JEL Classification: G32, G21, G01, Z13, D21
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