Ross Levine, Chen Lin, Wensi Xie, (2016), “The role of social trust in building corporate resilience to systemic banking crises”, Voxeu, 3 Ιουνίου
Although banking crises are costly, common, and heavily researched (e.g. Reinhardt and Rogoff 2009, Laeven 2011), there is surprisingly little research on corporate resilience to systemic banking crises. While almost all countries experience crises, corporations in different countries and industries respond very differently to those crises. In a recent paper, we show that strong shareholder protection laws mitigate the adverse effects of banking crises by easing the ability of corporations to issue equity when crises curtail their access to bank credit (Levine et al. 2016a). Other factors might also shape the ability of firms to obtain financing during banking crises.In a new paper (Levine et al. 2016b), we examine whether social trust affects (a) the ability of firms to obtain financing through informal channels when crises reduce the flow of bank loans to firms, and (b) the resilience of corporate profits and employment to systemic banking crises. Social trust refers to the expectations within a community that people will behave in honest and cooperative ways, and the extent to which human interactions are governed by the norms of reciprocity and trustworthiness. Informal credit refers to credit provision that occurs beyond the scope of a country’s formal financial and regulatory institutions. For example, firms often receive trade credit that does not involve collateral or promissory notes subject to formal judicial enforcement mechanisms. Trade credit represents a large proportion of debt financing, accounting for 25% of the average firm’s total debt liabilities in our sample of over 3,500 firms across 34 countries from 1990 to 2011.
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