Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/128371 
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper No. 5669
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We test whether adverse changes to banks’ market valuations during the financial and sovereign debt crises, and the associated increase in banks’ cost of funding, affected firms’ real decisions. Using new data linking over 3,000 non-financial Italian firms to their bank(s), we find that increases in banks’ CDS spreads, and decreases in their equity valuations, resulted in lower investment, employment, and bank debt for younger and smaller firms. Importantly, these effects dominate those of banks’ balance-sheet variables. We also show that higher CDS spreads led to lower aggregate investment, employment, and a less efficient resource allocation.
Subjects: 
financial crisis
sovereign debt crisis
credit default swaps
investment
employment
JEL: 
E44
G01
E22
E24
G21
Document Type: 
Working Paper
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