Transmission of the Sovereign Debt Crisis: Bank-Firm Level Evidence From France

29 Pages Posted: 17 Jun 2020

See all articles by Pietro Grandi

Pietro Grandi

Université Panthéon-Assas (Paris II) - Laboratoire d'économie mathématique et de microéconomie appliquée; Boston College

Elisa Darriet

Conservatoire National des Arts et Métiers (CNAM)

Marianne Guille

Université Panthéon-Assas (Paris II) - Laboratoire d'économie mathématique et de microéconomie appliquée

Jean Belin

University of Bordeaux - GREThA (Research Group in Theoretical and Applied Economics)

Date Written: May 22, 2020

Abstract

Using a large panel dataset of more than 60.000 firms matched to 125 banks in France, we investigate the transmission of the Sovereign Debt Crisis to the French economy via lending relations. We show that French banks’ exposure to sovereign stress negatively affected their corporate borrowers and this impact is heterogeneous across firms. We document three main findings. First, banks most exposed to risky sovereign debt decreased overall lending by more relatively to less exposed banks during the Sovereign Debt Crisis. Second, firms that borrowed from banks with higher sovereign debt exposure obtained less short-term loans and faced higher funding costs with respect to firms related to other banks. Third, the magnitude of these effects depends on the likelihood of firms being financially constrained: among firms related to banks with larger exposure to sovereign risk, younger and smaller firms were relatively more affected by these credit restrictions. These results support existing evidence on the spill-overs of the Sovereign Debt Crisis in the Euro Area from peripheral to core countries via the direct exposure of their domestic banking system.

Keywords: Sovereign debt crisis; Relationship lending; Financing constraints; Bank lending channel

JEL Classification: G01; G21; G32

Suggested Citation

Grandi, Pietro and Darriet, Elisa and Guille, Marianne and Belin, Jean, Transmission of the Sovereign Debt Crisis: Bank-Firm Level Evidence From France (May 22, 2020). Available at SSRN: https://ssrn.com/abstract=3608358 or http://dx.doi.org/10.2139/ssrn.3608358

Pietro Grandi (Contact Author)

Université Panthéon-Assas (Paris II) - Laboratoire d'économie mathématique et de microéconomie appliquée ( email )

4 rue Blaise Desgoffe
Paris, 75006
France

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Elisa Darriet

Conservatoire National des Arts et Métiers (CNAM)

292, rue Saint-Martin
Paris cedex 03, 75141
France

Marianne Guille

Université Panthéon-Assas (Paris II) - Laboratoire d'économie mathématique et de microéconomie appliquée

4 rue Blaise Desgoffe
Paris, 75006
France

Jean Belin

University of Bordeaux - GREThA (Research Group in Theoretical and Applied Economics)

Avenue Léon Duguit
Pessa, 33608
France

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