Louri-Dendrinou, Ε. (2014) “How likely is a credit-less recovery in the euro area? The role of a capital markets union“, LSE EUROPP, Hellenic Observatory – European Institute, 10 Δεκεμβρίου.
It is often discussed how bank-dependent for financing investment euro area firms are. It is estimated that 80% of their investment needs are financed from banks and only 20% from capital markets, while in the US the reverse is true. One of the reasons for this may be the large number of small and medium sized firms (SMEs) in Europe that are relatively small to be analysed and rated by rating companies. Hence, they remain dependent on the assessment of their local bank branch. Another reason may be the fragmentation of national capital markets where asymmetry of information, differences in regulation and savings availability issues are important.
Taking into account the reduction in the growth rate of bank credit in the euro area (reaching negative territory in many member countries since the onset of the financial crisis), how much are firm growth rates really affected? And are all euro area firms (for instance, large vs SMEs) affected in the same way? Have any of them managed to find substitutes for bank credit? And what role do the structural characteristics of the domestic banking sectors and even the domestic economies have (if any) in influencing firm growth? These are all interesting questions taking into account that firm growth is assumed to be the engine of economic recovery in the relevant literature.
Within this research framework, together with Dimelis and Giotopoulos (2013; 2015), we performed a panel data econometric analysis of more than 2000 euro area quoted firms in 2005-2011 (collected from Datastream) [1]. We found that the growth rate (growth of sales) of SMEs (with less than €10 million annual turnover) which were 95% of our (representative) sample was significantly dependent on bank credit. Especially, before the 2008 crisis, a positive relationship has been estimated and applied not only ‘on average’, but also across the distribution of firm performances (using quantile regressions). Post-2008, only those SMEs in the upper quantiles (often named ‘gazelles’ for exhibiting fast growth) were not dependent on bank credit. The rest were still significantly dependent. On the contrary, larger firms (5% of our sample) were not significantly affected neither before, nor after 2008 in any growth quantile. Apparently, large firms could resort to other sources of funding, the capital market being certainly one of them. So credit-less growth is relevant only for those firms large enough to receive investment funding from non-bank sources or for the ‘gazelles’ (among the SMEs). For the majority of the smaller, less dynamic firms of our sample such a probability is quite remote.
Σχετικές αναρτήσεις:
- Daniel Gros: “Quantitative Easing and Deflation in a Creditor Economy, στο Growth, Convergence and Income Distribution: The Road from the Brisbane G-20 Summit, σσ. 87-91, Think Tank 20: Νοέμβριος 2014.
- Lucas, D. (2014) “Evaluating the cost of government credit support: the OECD context“. Economic Policy, Vol. 29, Issue 79, pp. 553-597.
- Steinkamp, S. & Westermann, F. (2014) “The role of creditor seniority in Europe’s sovereign debt crisis“. Economic Policy, Vol. 29, Issue 79, pp. 495–552.