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Does Bank Lending Matter for Large Firms' Investment?

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  • Marios Karabarbounis

Abstract

This paper analyzes how firm investment is affected by changes in bank lending. The analysis uses firm-level data on investment and bank loan issuance. To capture variations in credit availability, I use a firm's exposure to banks that experienced financial disruptions, in the spirit of Chodorow-Reich (2014). I find that firms in lending relationships with banks that sharply decreased their lending did not significantly decrease their investment compared with firms in relationships with healthier banks. In contrast, more traditional measures of bank lending show a strong correlation between credit availability and firms' investment.

Suggested Citation

  • Marios Karabarbounis, 2015. "Does Bank Lending Matter for Large Firms' Investment?," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 303-317.
    • Handle: RePEc:fip:fedreq:00039
    DOI: 10.21144/eq1010402
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    1. Ramey, Valerie, 1993. "How important is the credit channel in the transmission of monetary policy?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 1-45, December.
    2. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
    3. Becker, Bo & Ivashina, Victoria, 2014. "Cyclicality of credit supply: Firm level evidence," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 76-93.
    4. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    5. Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
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    Cited by:

    1. Goel, Manisha & Zemel, Michelle, 2018. "Switching to bonds when loans are scarce: Evidence from four U.S. crises," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 1-27.
    2. Marios Karabarbounis & Patrick Macnamara, 2019. "Misallocation and Credit Market Constraints: the Role of Long-Term Financing," Working Paper 19-1, Federal Reserve Bank of Richmond.

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