Firms’ Expectations on the Availability of Credit Since the Financial Crisis

46 Pages Posted: 8 Jan 2020

See all articles by Annalisa Ferrando

Annalisa Ferrando

European Central Bank (ECB)

Ioannis Ganoulis

European Central Bank (ECB) - Directorate General Economics

Carsten Preuss

affiliation not provided to SSRN

Date Written: December, 2019

Abstract

Using a large set of firm-level survey data from the euro area since 2009, we analyse how firms use their information to form expectations on the availability of bank finance. Our results suggest that firms update what otherwise look like adaptive expectations on the basis of the latest information in their information set. As in the previous literature, the hypothesis that expectations fulfil the (orthogonality) conditions of the rational expectations hypothesis is rejected by the data. We find evidence that this is not only due to information imperfections but also to some type of misspecification of the expectations’ model that firms are using. In addition, we find some evidence that companies that have not used bank finance recently tend to do worse at forecasting its availability next period. To test how policy announcements may affect expectations, we concentrate on the possible effects of the ECB policy announcements of summer 2012, which included among other things the announcement of the European Central Bank’s Outright Monetary Transactions Program (OMT). Using a difference-in-differences approach, we find evidence of forward-looking expectations. In particular, shortly after the OMT announcement the forecast of “informed” firms were more upbeat compared to the control group of firms. This moreover was true in both vulnerable and non-vulnerable countries, suggesting that it was the relevance of the information about the future of the banking system that most mattered for expectations at the time, more than the immediate impact of the announced policy measures.

Keywords: expectation formation, policy announcements and survey data

JEL Classification: C83, D22, D84

Suggested Citation

Ferrando, Annalisa and Ganoulis, Ioannis and Preuss, Carsten, Firms’ Expectations on the Availability of Credit Since the Financial Crisis (December, 2019). Available at SSRN: https://ssrn.com/abstract=3515395 or http://dx.doi.org/10.2139/ssrn.3515395

Annalisa Ferrando (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ioannis Ganoulis

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Carsten Preuss

affiliation not provided to SSRN

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