Survive another day: using changes in the composition of investments to measure the cost of credit constraints

Garicano, Luis and Steinwender, Claudia (2016) Survive another day: using changes in the composition of investments to measure the cost of credit constraints. Review of Economics and Statistics, 98 (5). pp. 913-924. ISSN 0034-6535

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Abstract

We introduce a novel empirical strategy to measure the size of credit shocks. Theoretically, we show that credit shocks reduce the value of long-term relative to short-term investments. Empirically, we can therefore compare the reduction of long-term relative to short-term investments within firms, allowing for firm-times-year fixed effects. Using Spanish firm level data, we estimate the credit crunch to be equivalent to an additional tax rate of around 11% on the longest lived capital. To pin down credit constraints as the underlying cause, we apply triple differences strategies using foreign ownership or pre-crisis debt maturity.

Item Type:	Article
Official URL:	http://www.mitpressjournals.org/toc/rest/0/ja
Additional Information:	© 2016 President and Fellows of Harvard College and the Massachusetts Institute of Technology
Divisions:	Management
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment (including Inventories); Capacity E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting; Fixed Investment and Inventory Studies
Date Deposited:	24 Mar 2016 16:52
Last Modified:	14 Sep 2024 07:04
Funders:	McKinsey & Co., The London School of Economics and Political Science
URI:	http://eprints.lse.ac.uk/id/eprint/65862

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