Credit constraints, firm investment and employment: Evidence from survey data

This paper assesses the impact of credit constraints on investment, inventories and employment using a large sample of firms from 12 European countries for the period 2014–2017. The data come from the Survey on the Access to Finance of Enterprises (SAFE), which contains direct information on the fin...

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Bibliographic Details
Published inJournal of banking & finance Vol. 99; pp. 121 - 141
Main Author García-Posada Gómez, Miguel
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.02.2019
Subjects
Credit constraints
Employment
Instrumental variables
Inventories
Investment
TLTRO
Inventories
Credit constraints
G31
G30
Employment
G32
Instrumental variables
TLTRO
Investment
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Summary:This paper assesses the impact of credit constraints on investment, inventories and employment using a large sample of firms from 12 European countries for the period 2014–2017. The data come from the Survey on the Access to Finance of Enterprises (SAFE), which contains direct information on the financial constraints faced by non-financial companies. The key identification challenge is a potential omitted variable bias, as firms with poor investment and growth opportunities may have a higher probability of being credit constrained. This problem is addressed by using an instrumental variable that is based on the allocation rule of the ECB's Targeted Longer-Term Refinancing Operations (TLTROs). The main findings suggest that credit constraints have strong negative effects on investment in fixed assets, while they have no impact on employment or inventories. Unconventional monetary policy may spur investment by reducing the incidence of credit constraints, especially in the case of large and old firms.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2018.11.016