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Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2012/11:
Credit Shocks Harm the Unprepared - Financing Constraints and the Financial Crisis

Ove Rein Hetland () and Aksel Mjs ()

Abstract: We show that the investments of ex ante financially unconstrained firms are more profoundly affected by changes in credit supply than the investments of financially constrained firms. We employ a survey of Norwegian private firms concerning the impact of the financial crisis of 2008-9, linked to firm-level financial and bank accounts. Adverse changes in credit availability reduce investments after controlling for output demand, and this effect is largest for the least financially constrained firms. This is consistent with a model where financially constrained firms hedge against cash flow shortfalls whilst ex ante unconstrained firms rely on access to external funds.

Keywords: Credit Shocks; Financing Constraints; Financial Crisis; (follow links to similar papers)

JEL-Codes: G00; (follow links to similar papers)

53 pages, September 28, 2012

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