Firm Performance during Crises
Friday, Jan. 7, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Jose Tessada, Pontifical Catholic University of Chile
Bank Liquidity Provision across the Firm Size Distribution
AbstractWe use supervisory loan-level data to document that small firms (SMEs) obtain shorter maturity credit lines than large firms; have less active maturity management; post more collateral; have higher utilization rates; and pay higher spreads. We rationalize these facts as the equilibrium outcome of a trade-off between lender commitment and discretion. Using the COVID recession, we test the prediction that SMEs are subject to greater lender discretion by examining credit line utilization. We show that SMEs do not drawdown in contrast to large firms despite SME demand, but that PPP loans helped alleviate the shortfall.
The Distribution of Crisis Credit: Effects on Firm Indebtedness and Aggregate Risk
AbstractWe study the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. Whereas public policies can help firms in need of financing, they can lead to adverse selection from riskier firms and higher default risk. We analyze unique transaction-level data of both demand and supply of credit for the universe of banks and firms, combined with administrative tax data for all firms, for a large-scale program of public credit guarantees in Chile during the COVID-19 pandemic. Demand factors channel credit toward riskier firms, rapidly distributing 4.6% of GDP and increasing firm leverage. Despite the adverse selection on the extensive and intensive margins at the micro-level, macroeconomic risks remain small. Several mitigating factors contribute to this outcome: the small weight of riskier firms in the aggregate, the exclusion of the riskiest firms, bank screening, contained expected defaults, and the government absorption of tail risk.
Burning Money? Government Lending in a Credit Crunch
AbstractWe analyze a small, new credit facility of a Spanish state-owned bank during the crisis,
using its continuous credit scoring system, its firm-level scores, and the credit register.
Compared to privately-owned banks, the state-owned bank faces worse applicants,
(softens) tightens its credit supply to (un)observed riskier firms, and has much higher
defaults, especially driven by unobserved ex-ante borrower risk. In a regression
discontinuity design, the supply of public credit causes: large positive real effects to
financially-constrained firms (whose relationship banks reduced substantially credit
supply); crowding-in of new private-bank credit; and positive spillovers to other firms.
Private returns of the credit facility are negative, while social returns are positive.
Overall, our results provide evidence on the existence of significant adverse selection
problems in credit markets.
- O1 - Economic Development
- G2 - Financial Institutions and Services