Corporate Resilience to Banking Crises: The Roles of Trust and Trade Credit

55 Pages Posted: 19 Mar 2016 Last revised: 4 Mar 2018

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School

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Date Written: February 1, 2017

Abstract

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

Suggested Citation

Levine, Ross Eric and Lin, Chen and Xie, Wensi, Corporate Resilience to Banking Crises: The Roles of Trust and Trade Credit (February 1, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2749096 or http://dx.doi.org/10.2139/ssrn.2749096

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

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