Citation

Discussion Paper Details

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Title: Credit Misallocation During the European Financial Crisis

Author(s): Fabiano Schivardi, Enrico Sette and Guido Tabellini

Publication Date: March 2017

Keyword(s): Bank capitalization, capital misallocation and zombie lending

Programme Area(s): Financial Economics and Industrial Organization

Abstract: Using data on bank-firm relationships in Italy during the Eurozone financial crisis, we show that: (i) compared to healthy banks, under-capitalized banks cut credit to healthy but not to zombie firms and are more likely to prolong a credit relationship with a zombie; (ii)\ in areas-sectors with more low-capital banks, zombies are more likely to survive; (iii) nevertheless, bank under-capitalization does not hurt the growth rate of healthy firms. We provide evidence that extending credit to the weakest firms during the recession mitigated the disruption of supply chains and adverse local demand externalities.

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Bibliographic Reference

Schivardi, F, Sette, E and Tabellini, G. 2017. 'Credit Misallocation During the European Financial Crisis'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11901