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Credit allocation and the financial crisis: evidence from Spanish companies

Journal of economic interaction and coordination, 2022-10, Vol.17 (4), p.1069-1114

The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2022 ;The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2022. ;ISSN: 1860-711X ;EISSN: 1860-7128 ;DOI: 10.1007/s11403-022-00361-w

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Title:
Credit allocation and the financial crisis: evidence from Spanish companies
Author: Petrović, Marko ; Teglio, Andrea ; Alfarano, Simone
Subjects: Balance sheets ; Banking industry ; Banks ; Computer Appl. in Social and Behavioral Sciences ; Construction industry ; Cost control ; Diversification ; Economic crisis ; Economic Theory/Quantitative Economics/Mathematical Methods ; Economics ; Economics and Finance ; Finance ; Financial leverage ; Financial statements ; Literature reviews ; Loans ; Manufacturing ; Mathematical and Computational Physics ; Regular Article ; Regulation of financial institutions ; Retail banking ; Theoretical
Is Part Of: Journal of economic interaction and coordination, 2022-10, Vol.17 (4), p.1069-1114
Description: The worldwide financial crisis of 2007–2008 raised serious concerns about the soundness of banks’ activities and about the extent to which banking regulation should supervise banks’ investment decisions. We contribute to this topic by examining the Spanish case, which has been emblematic of the bubble and burst dynamics in the credit market. In particular, we study the allocation of bank credit among Spanish companies from 1999 to 2014, showing that larger companies accumulated greater amounts of bank loans per unit of total assets, thus leading to a notable concentration. We also find that, during the Spanish boom period, bank loans shifted from the manufacturing to the construction industry, and in particular to the largest companies of the latter sector. This happened in spite of the high leverage of large construction firms, which was increasing also due to their growing debt. We argue that the higher operating benefits, reflecting the increase of the housing price during the boom period, overvalued construction firms as potential borrowers. The bankruptcy of several large construction companies during the Spanish crisis supports the need for monitoring and regulation, to avoid an excessive concentration of bank credit to a few large companies, especially if they belong to a specific sector.
Publisher: Berlin/Heidelberg: Springer Berlin Heidelberg
Language: English
Identifier: ISSN: 1860-711X
EISSN: 1860-7128
DOI: 10.1007/s11403-022-00361-w
Source: ProQuest Central

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Credit allocation and the financial crisis: evidence from Spanish companies

The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2022 ;The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2022. ;ISSN: 1860-711X ;EISSN: 1860-7128 ;DOI: 10.1007/s11403-022-00361-w

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