The Effect of Bank Shocks on Firm-Level and Aggregate Investment

41 Pages Posted: 11 Jul 2016

See all articles by João Amador

João Amador

Bank of Portugal

Arne Nagengast

Deutsche Bundesbank - Economics Department

Multiple version iconThere are 2 versions of this paper

Date Written: 2016

Abstract

We show that credit supply shocks have a strong impact on firm-level as well as aggregate investment by applying the methodology developed by Amiti and Weinstein (2013) to a rich dataset of matched bank-firm loans in the Portuguese economy for the period 2005 to 2013. We argue that their decomposition framework can also be used in the presence of small firms with only one banking relationship as long as they account for only a small share of the total loan volume of their banks. The growth rate of individual loans in our dataset is decomposed into bank, firm, industry and common shocks. Adverse bank shocks are found to impair firm-level investment in all firms in our sample, but in particular for small firms and those with no access to alternative financing sources. For the economy as a whole, granular shocks in the banking system account for around 20-40% of aggregate investment dynamics.

Keywords: Banks, Credit Dynamics, Investment, Firm-level data, Portuguese Economy

JEL Classification: E32, E44, G21, G32

Suggested Citation

Amador, João and Nagengast, Arne, The Effect of Bank Shocks on Firm-Level and Aggregate Investment (2016). Bundesbank Discussion Paper No. 20/2016, Available at SSRN: https://ssrn.com/abstract=2807291

João Amador (Contact Author)

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Arne Nagengast

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

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