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Shocks abroad, pain at home? Bank-firm level evidence on financial contagion during the recent financial crisis


Ongena, Steven; Peydró, José Luis; van Horen, Neeltje (2016). Shocks abroad, pain at home? Bank-firm level evidence on financial contagion during the recent financial crisis. IMF Economic Review, 63(4):698-750.

Abstract

We study the international transmission of shocks from the banking to the real sector during the global financial crisis. For identification, we use matched bank-firm level data, including many small and medium-sized firms, in Eastern Europe and Central Asia. We find that internationally-borrowing domestic and foreign-owned banks contract their credit more during the crisis than domestic banks that are funded only locally. Firms that are dependent on credit and at the same time have a relationship with an internationally-borrowing domestic or a foreign bank (as compared to a locally-funded domestic bank) suffer more in their financing and real performance. Single-bank-relationship firms, small firms and firms with intangible assets suffer most. For credit-independent firms, there are no differential effects. Our findings suggest that financial globalization has intensified the international transmission of financial shocks with substantial real consequences.

Abstract

We study the international transmission of shocks from the banking to the real sector during the global financial crisis. For identification, we use matched bank-firm level data, including many small and medium-sized firms, in Eastern Europe and Central Asia. We find that internationally-borrowing domestic and foreign-owned banks contract their credit more during the crisis than domestic banks that are funded only locally. Firms that are dependent on credit and at the same time have a relationship with an internationally-borrowing domestic or a foreign bank (as compared to a locally-funded domestic bank) suffer more in their financing and real performance. Single-bank-relationship firms, small firms and firms with intangible assets suffer most. For credit-independent firms, there are no differential effects. Our findings suggest that financial globalization has intensified the international transmission of financial shocks with substantial real consequences.

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5 citations in Web of Science®
6 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 January 2016
Deposited On:22 Dec 2016 10:17
Last Modified:25 Dec 2016 06:34
Publisher:Palgrave Macmillan Ltd.
ISSN:2041-4161
Publisher DOI:https://doi.org/10.1057/imfer.2015.34
Related URLs:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2297765 (Organisation)
Other Identification Number:merlin-id:12392

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