Foreign and Domestic Loans over the Business Cycle

37 Pages Posted: 27 Mar 2019 Last revised: 7 Jun 2019

See all articles by Jens Forssbæck

Jens Forssbæck

Lund University - Department of Economics

Frederik Lundtofte

Lund University - Department of Economics

Martin Strieborny

Lund University

Anders Vilhelmsson

Lund University - Department of Economics

Date Written: June 4, 2019

Abstract

During good economic times, domestic firms' probability of obtaining loans from foreign banks increases in the firm's opacity. During downturns in the domestic economy, this relation reverses as the probability of obtaining a foreign loan decreases for all firms, but drops disproportionately for opaque borrowers. Firms that are in closer proximity to foreign banks by some measure (such as firms with a higher share of foreign sales) are always more likely to obtain foreign loans due to lower transaction costs. 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

Forssbaeck, Jens and Lundtofte, Frederik and Strieborny, Martin and Vilhelmsson, Anders, Foreign and Domestic Loans over the Business Cycle (June 4, 2019). Available at SSRN: https://ssrn.com/abstract=3338283 or http://dx.doi.org/10.2139/ssrn.3338283

Jens Forssbaeck (Contact Author)

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07 Lund
Sweden

Frederik Lundtofte

Lund University - Department of Economics ( email )

P.O. Box 7082
Lund
Sweden
+46 46 222 4970 (Phone)
+46 46 222 4118 (Fax)

HOME PAGE: http://www.nek.lu.se/nekflu

Martin Strieborny

Lund University ( email )

P.O. Box 7082
S-220 07 Lund
Sweden

Anders Vilhelmsson

Lund University - Department of Economics ( email )

Lund
Sweden

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