Labor and Finance: The Effect of Bank Relationships

42 Pages Posted: 15 Nov 2018 Last revised: 10 Mar 2020

See all articles by Patrick Behr

Patrick Behr

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE)

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE); Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Raquel F. Oliveira

Central Bank of Brazil; Fundação Escola de Comércio Álvares Penteado (FECAP)

Date Written: March 9, 2020

Abstract

We investigate whether and how firms’ number of bank relationships affects labor market outcomes. We base our analysis on more than 5 million observations on matched credit and labor data from Brazilian firms during 2005-2014. We find that firms with more bank relationships employ significantly more workers and pay significantly higher wages. Moreover, increases (decreases) in the number of bank relationships result in positive (negative) effects on employment and wages. These results are robust for strictly exogenous changes in the number of bank relationships due to nationwide bank M&A activity, instrumental variable regressions, and independent of firm size. The effects are due (but not limited) to higher credit availability and lower cost of credit. Importantly, the firm-level results consistently translate into positive macroeconomic effects at the municipality and state level. The evidence is novel and suggests positive effects of multiple bank relationships on labor market outcomes.

Keywords: Credit, banks, real effects, employment, wages, credit registry

JEL Classification: G21, J21, O10

Suggested Citation

Behr, Patrick and Norden, Lars and Oliveira, Raquel F., Labor and Finance: The Effect of Bank Relationships (March 9, 2020). Available at SSRN: https://ssrn.com/abstract=3276655 or http://dx.doi.org/10.2139/ssrn.3276655

Patrick Behr

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Brazil

Lars Norden (Contact Author)

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Raquel F. Oliveira

Central Bank of Brazil ( email )

Av. Paulista, 1804 - 4o andar
Sao Paulo, SP 01310-922
Brazil

Fundação Escola de Comércio Álvares Penteado (FECAP)

Av. Liberdade, 532
Liberdade
São Paulo
Brazil

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