Financial Fragility and Growth Prospects: Credit Rationing During the Crisis

Abstract

This paper analyzes firms’ difficulties in accessing credit before and during the crisis, by focusing on two of their characteristics: financial fragility and growth prospects. Our econometric analysis indicates that fragile financial conditions were associated with a much higher than average probability of rationing, both before and during the crisis. High rates of growth in sales and investments, in value added per employee and in the propensity to export – indicators presumably linked to growth prospects – favoured access to credit in the period leading up to the financial crisis; during the crisis, instead, credit rationing was more widespread and less related to firms’ potential growth. Lending relationships facilitated access to the credit market, especially for firms with better growth prospects; this result is consistent with the hypothesis that the banks which are more involved in firms’ financing have better information and stronger incentives to use it.