The Real Effects of Financial Sector Interventions during Crises |
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Authors: | LUC LAEVEN FABIÁN VALENCIA |
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Affiliation: | Luc Laeven is Deputy Division Chief, Research Department, International Monetary Fund, Professor of Finance at Tilburg University, and a Research Fellow at CEPR (E‐mail: llaeven@imf.org). Fabián Valencia is an economist in the Research Department of the International Monetary Fund (E‐mail: fvalencia@imf.org). |
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Abstract: | We assess the importance of supply‐side credit market frictions by studying the impact of bank recapitalization on firm growth in 50 countries during the recent crisis. Our identification strategy exploits the crisis as a shock to credit supply and combines an exogenous measure of firms’ dependence on external financing with policy interventions aimed at restoring bank capital. We find that the growth of financially dependent firms is disproportionately positively affected by bank recapitalization. This effect is quantitatively important and robust to controlling for other policies. These results provide new evidence of the influence of credit market frictions on economic activity. |
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Keywords: | E44 G18 G28 banking crisis government intervention stabilization policies crisis resolution |
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