Labor and Finance: The Effect of Bank Relationships
42 Pages Posted: 15 Nov 2018 Last revised: 10 Mar 2020
Date Written: March 9, 2020
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: Suggested Citation