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The banks that said no: banking relationships, credit supply and productivity in the UK

Franklin, Jeremy, Rostom, May and Thwaites, Gregory (2015) The banks that said no: banking relationships, credit supply and productivity in the UK. CFM discussion paper series (CFM-DP2015-25). Centre For Macroeconomics, London, UK.

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Abstract

This paper uses a large firm-level dataset of UK companies and information on their pre-crisis lending relationships to identify the causal links from changes in credit supply to the real economy following the 2008 financial crisis. Controlling for demand in the product market, we find that the contraction in credit supply reduced labour productivity, wages and the capital intensity of production at the firm level. Firms experiencing adverse credit shocks were also more likely to fail, other things equal. We find that these effects are robust, statistically significant and economically large, but only when instruments based on pre-crisis banking relationships are used. We show that banking relationships were conditionally randomly assigned and were strong predictors of credit supply, such that any bias in our estimates is likely to be small.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2015 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 14 Dec 2017 09:49
Last Modified: 17 Jul 2019 23:26
URI: http://eprints.lse.ac.uk/id/eprint/86284

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