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How large is the Financial Accelerator? Some Evidence from Firm-level Data

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  • Lein, Sarah Marit
  • Bäurle, Gregor
  • Lein, Sarah M.
  • Steiner, Elizabeth

Abstract

This paper analyzes how the size and composition of the balance sheet affects firms financing cost within a large panel of Swiss firms in the non-financial sector from 1998 to 2011. The data includes a large number of small firms, which makes the data representative. We use an instrumental variables approach to identify the investment finance supply curve. Our finding that financing cost increase with exogenous changes in leverage supports the financial accelerator mechanism a la Bernanke, Gertler and Gilchrist. We quantitatively evaluate the implications of our findings for the aggregate business cycle and find that the amplification mechanism of the financial accelerator is economically significant: the volatility of the business cycle is amplified by a factor of 2.25 due to the presence of the financial accelerator channel.

Suggested Citation

  • Lein, Sarah Marit & Bäurle, Gregor & Lein, Sarah M. & Steiner, Elizabeth, 2016. "How large is the Financial Accelerator? Some Evidence from Firm-level Data," VfS Annual Conference 2016 (Augsburg): Demographic Change 145600, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145600
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    1. Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," American Economic Review, American Economic Association, vol. 102(6), pages 2381-2409, October.
    2. R?diger Bachmann & Christian Bayer, 2014. "Investment Dispersion and the Business Cycle," American Economic Review, American Economic Association, vol. 104(4), pages 1392-1416, April.
    3. Casey B. Mulligan, 2002. "Capital, Interest, and Aggregate Intertemporal Substitution," NBER Working Papers 9373, National Bureau of Economic Research, Inc.
    4. Blanchard, Olivier Jean & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 1994. "What do firms do with cash windfalls?," Journal of Financial Economics, Elsevier, vol. 36(3), pages 337-360, December.
    5. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    6. Dedola, Luca & Lippi, Francesco, 2005. "The monetary transmission mechanism: Evidence from the industries of five OECD countries," European Economic Review, Elsevier, vol. 49(6), pages 1543-1569, August.
    7. repec:hal:spmain:info:hdl:2441/75koqefued8i7pihbrl9u84p4u is not listed on IDEAS
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    Cited by:

    1. Zabavnik, Darja & Verbič, Miroslav, 2023. "The effects of financial frictions on Slovenian companies: A panel VAR approach," Finance Research Letters, Elsevier, vol. 58(PC).

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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