Don't Stop Me Now: The Impact of Credit Market Fragmentation on Firms' Financing Constraints

43 Pages Posted: 17 Mar 2017

See all articles by Franziska Bremus

Franziska Bremus

German Institute for Economic Research (DIW Berlin)

Katja Neugebauer

Systemic Risk Centre - LSE

Date Written: March 9, 2017

Abstract

This paper investigates how the withdrawal of banks from their cross-border business impacted the borrowing costs of European firms since the crisis. We combine aggregate information on total and cross-border credit with firm-level survey data for the period 2010-2014. We find that the decline in cross-border lending led to a deterioration in the borrowing conditions of small firms. In countries with more pronounced reductions in cross-border credit inflows, the likelihood of a rise in firms’ external financing costs has increased. This result is mainly driven by the interbank channel, which plays a crucial role in transmitting shocks to the real sector across borders.

Keywords: International banking, firm finance, credit constraints

JEL Classification: F34, F36, G15, G21

Suggested Citation

Bremus, Franziska and Neugebauer, Katja, Don't Stop Me Now: The Impact of Credit Market Fragmentation on Firms' Financing Constraints (March 9, 2017). DIW Berlin Discussion Paper No. 1650. Available at SSRN: https://ssrn.com/abstract=2934283 or http://dx.doi.org/10.2139/ssrn.2934283

Franziska Bremus (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Katja Neugebauer

Systemic Risk Centre - LSE ( email )

Houghton St, London WC2A 2AE, United Kingdom

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