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Credit Markets, Relationship Lending, and the Dynamics of Firm Entry

Author

Listed:
  • Qingqing Cao

    (Michigan State University)

  • Paolo Giordani

    (LUISS University)

  • Raoul Minetti

    (Michigan State University)

  • Pierluigi Murro

    (LUISS University)

Abstract

We study the impact of credit relationships on firm entry, and the implications for aggregate investment and output. Exploiting Italian data, we find that relationship-oriented local credit markets feature fewer, larger entrants, and relatively more spinoff entrants. Relationship lending discourages de novo entry when banks' knowledge is incumbent-specific but promotes knowledge transfers to spinoffs. We explain these patterns in a dynamic general equilibrium model where banks accumulate information in credit relationships and can reuse information when financing entrants. Relationship lending raises output, as the larger investments and the credit reallocation from de novos to spinoffs outweigh the entry slowdown. (Copyright: Elsevier)

Suggested Citation

  • Qingqing Cao & Paolo Giordani & Raoul Minetti & Pierluigi Murro, 2023. "Credit Markets, Relationship Lending, and the Dynamics of Firm Entry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 343-369, December.
    • Handle: RePEc:red:issued:22-159
    DOI: 10.1016/j.red.2023.02.001
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    More about this item

    Keywords

    Credit relationships; Banks; Entry dynamics; Aggregate investment;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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