This paper advocates for incorporating timely measures of firms' current situation and future expectations when disentangling real effects of credit supply from demand-side factors. Identification of supply-side effects in firm-level analyses often relies on balance sheet variables to control for firm heterogeneity. While balance sheets mirror past business, bias from contemporaneous and forward-looking firm-side factors may persist.Using German firm-level survey data from 2003 to 2011, we show that controllingfor firms' current situation and future expectations reduces upward bias in estimatedcredit supply-side effects on firm-level production. This is particularly important when market data is unavailable for firms.
Credit constraints production employment matching estimator