THE CREDIT CRUNCH AND FIRM GROWTH
IN THE EURO AREA: 2005-2011. A QUANTILE PANEL ANALYSIS.
Sophia Dimelis
Athens University of Economics and Business
Ioannis Giotopoulos
Foundation for Economic & Industrial Research (IOBE), University of Peloponnese and
Bank of Greece
Helen Louri
Bank of Greece and
Athens University of Economics and Business
ABSTRACT
This paper explores the effects of bank credit on firm growth before and after the recent financial crisis outbreak, taking into account different structural characteristics of the banking sector and the domestic economy. The econometric method of panel quantiles is used on a large sample of 2075 firms operating in the euro area (17 countries) for the period 2005-2011. The main results of this paper indicate a strong dependence of firm growth on credit expansion before the crisis. However, post-2008, the credit crunch seems to seriously affect only slow-growth firms and especially those operating in domestic bank-dominated economies. Furthermore, the classification of firms in groups by size yields interesting results: the credit crunch exhibits a strong impact on small firms only. Separate estimates for more and less financially developed economies show that the credit crunch matters mainly in countries with a lower degree of financial development. Moreover, our findings reveal that the degree of banking concentration affects firm growth in a negative way in most estimates. Finally, risk and financial stability matter for firm growth for the total sample and for domestic bank-dominated economies, while in general they do not matter when markets are dominated by foreign banks.
Keywords: Credit Crunch; Firm Growth; Foreign Bank Penetration; Banking Concentration; Financial Crisis; Panel Quantile Regressions; Financial Development
JEL classification: E51; L25; L10; G21
Acknowledgments: Thanks are due to Heather Gibson and participants at the EARIE 2013 and ASSET 2013 conferences for many useful and insightful comments and suggestions.
Correspondence:
Helen Louri
Bank of Greece,
21 E. Venizelos Ave.,
10250 Athens, Greece
Tel.: +30 210 320 2007
Email: elouri@bankofgreece.gr