Firms’ Financial and Real Responses to Credit Supply Shocks: Evidence From Firm-Bank Relationships in Germany

Posted: 8 Apr 2020

See all articles by Nadja Dwenger

Nadja Dwenger

Max Planck Institute for Tax Law and Public Finance

Frank M. Fossen

University of Nevada, Reno; IZA Institute of Labor Economics

Martin Simmler

University of Oxford - Oxford University Centre for Business Taxation; German Institute for Economic Research (DIW Berlin)

Date Written: January 31, 2018

Abstract

We investigate the importance of firm-bank relationships for the international transmission of bank distress to the real economy. Using a large panel of matched financial statements of firms of all sizes and their relationship banks in Germany, we find that banks with losses from proprietary trading activities during the 2007/8 financial crisis decreased their lending, and that their firm customers responded by reducing real investment and employment. We document how different types of firms partially offset reduced credit supply by resorting to alternative financing sources.

Keywords: Financial crisis, International contagion, Credit crunch, Relationship lending, Investment, Employment

JEL Classification: D22, D92, G01, G21, G31

Suggested Citation

Dwenger, Nadja and Fossen, Frank M. and Simmler, Martin, Firms’ Financial and Real Responses to Credit Supply Shocks: Evidence From Firm-Bank Relationships in Germany (January 31, 2018). Journal of Financial Intermediation, Vol. 41, 2020, Available at SSRN: https://ssrn.com/abstract=3553850

Nadja Dwenger

Max Planck Institute for Tax Law and Public Finance ( email )

10117
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/public_economics/public_economics_people/dwenger_nadja.cfm

Frank M. Fossen

University of Nevada, Reno ( email )

1664 N. Virginia Street
Reno, NV 89557-0030
United States

HOME PAGE: http://business.unr.edu/faculty/ffossen/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=2906

Martin Simmler (Contact Author)

University of Oxford - Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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