Should I stay or should I go? Firms’ mobility across banks in the aftermath of financial turmoil

We study the mobility of Italian firms across different lending banks in the aftermath of Lehman Brothers’ collapse, when 40 per cent of the firms analysed changed their pool of lending banks. Using a unique dataset on a sample of about 3,000 Italian firms that encompasses financial and economic records, information on the existence of credit constraints and data on lending relationships with banks, we provide evidence that mobility within the credit market helped to ease credit constraints. Firms that started new banking relationships were able to maintain or even increase their outstanding loans. These firms were generally large and credit-rationed. At the same time, access to new credit lines was more difficult for small and more opaque firms, for which a long-term relationship with their main bank has been the most effective way of overcoming financial constraints. Geographical proximity is also important in affecting credit constraints: the closer the firms are to the lending banks, the lower is the probability of their closing an existing credit relationship and start a new one.