Abstract
This paper investigates firms’ access to bank credit in eleven euro area countries over the periods 2014–2019. Exploiting firm-level longitudinal data, we analyse loan demand and credit rationing probabilities, accounting for sample selection, unobserved heterogeneity and state dependence. Empirical results show that small and informationally opaque businesses, with deteriorated public support and credit history, face greater difficulties in obtaining bank loans. Furthermore, we provide evidence of a significant degree of state dependence in access to credit. In particular, firms that have already experienced credit restrictions are more likely to face further constraints, while enterprises that applied for bank financing in the past seem to have easier access to credit. Focusing on the subset of firms actually needing additional bank financing, we also find that past credit restrictions significantly reduce their current demand, providing evidence of a significant discouragement effect.
Highlights
Access to bank credit is one of the key drivers of firms’ survival and growth especially in countries with a bank-based financial system, where the recourse to alternative external financing sources by small and medium enterprises (SMEs) is limited
Focusing on the subset of firms needing additional bank financing, we find that past credit restrictions significantly reduce their current demand, providing evidence of a significant discouragement effect
A recent strand of literature has explored the demandside constraints on access to credit and focus on credit discouragement that is on the decision by a firm needing finance not to apply for a loan as it feels its application will be rejected (Cole & Sokolyk, 2016)
Summary
Access to bank credit is one of the key drivers of firms’ survival and growth especially in countries with a bank-based financial system, where the recourse to alternative external financing sources by small and medium enterprises (SMEs) is limited. We analyse firms’ financing conditions in a period characterized by a slow, but constant recovery after the global financial crisis, in which access to bank lending may represent a financial accelerator of firms’ investments To this aim, we exploit the information on loan application outcomes provided by the SAFE survey and consider alternative direct indicators of credit rationing, taking into account different degrees of financing constraints in terms of both credit rejection and quantity restrictions. One of the main aims of our analysis is to identify and consistently estimate true state dependence in firms’ access to credit demand, net of the other sources of persistence In this regard, controlling for unobserved time-invariant firm heterogeneity, addressing sample selection bias and handling the endogeneity of initial conditions, we provide strong empirical evidence that past credit access conditions exert a significant causal effect on future credit demand behaviour and financing constraints.
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