Finance and the Business Cycle: International, Inter-Industry Evidence

41 Pages Posted: 8 Mar 2004

See all articles by Matías Braun

Matías Braun

Universidad Adolfo Ibanez

Borja Larrain

Pontificia Universidad Catolica de Chile

Abstract

By considering yearly production growth rates for several manufacturing industries in more than one hundred countries during (roughly) the last forty years, we show that industries that are more dependent on external finance are hit harder during recessions. The observed difference in the behavior of industries is larger when financial frictions are thought to be more prevalent, linking the result more directly to the financial mechanism hypothesis. In particular, more dependent industries are more strongly affected in recessions when located in countries with poor financial contractibility, and when their assets are softer or less protective of financiers.

Keywords: Credit Channel, Financial Development, Asset Hardness

JEL Classification: E3, G00

Suggested Citation

Braun, Matias and Larrain, Borja, Finance and the Business Cycle: International, Inter-Industry Evidence. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=515072

Matias Braun (Contact Author)

Universidad Adolfo Ibanez ( email )

Diagonal Las Torres 2640 Peñaleón
Presidente Errázuriz 3485 Las Condes
Santiago, 794-1169
Chile

HOME PAGE: http://www.matiasbraun.com

Borja Larrain

Pontificia Universidad Catolica de Chile ( email )

Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile

HOME PAGE: http://economiayadministracion.uc.cl/personal/blarrain/

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