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Credit Supply Shocks: Financing Real Growth or Takeovers?

Author

Listed:
  • Tobias Berg
  • Daniel Streitz
  • Michael Wedow

Abstract

How do firms invest when financial constraints are relaxed? We document that firms affected by a large positive credit supply shock predominantly increase borrowing for transaction-based purposes. These treated firms have larger asset and employment growth rates; however, growth entirely stems from the increased takeover activity. Announcement returns indicate a low quality of the credit-supply-induced takeover activity. These results offer the possibility that credit-driven growth can simply reflect redistribution, rather than net gains in assets or employment. (JEL G21, G23, G31, G32)Received June 29, 2021; editorial decision August 18, 2022 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Tobias Berg & Daniel Streitz & Michael Wedow, 2024. "Credit Supply Shocks: Financing Real Growth or Takeovers?," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 13(2), pages 428-458.
    • Handle: RePEc:oup:rcorpf:v:13:y:2024:i:2:p:428-458.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfac034
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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