Foreign and Domestic Loans over the Business Cycle
43 Pages Posted: 27 Mar 2019 Last revised: 27 Jan 2021
Date Written: January 26, 2021
During good economic times, the likelihood of obtaining a loan from a foreign bank increases in the borrower firm's opacity. During bad economic times (recessions), this relation reverses as the probability of obtaining a foreign loan decreases for all firms, but drops disproportionately more for opaque borrowers. Independently of the business cycle, firms with a higher share of foreign sales are more likely to obtain a foreign loan. We derive these predictions in a formal theoretical framework and confirm them empirically using a loan-bank-firm level dataset covering forty countries during the 1999-2016 period.
Keywords: foreign banks, cross-border loans, business cycles
JEL Classification: G21, E44, F65
Suggested Citation: Suggested Citation