Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/270978 
Year of Publication: 
2023
Series/Report no.: 
IWH Discussion Papers No. 10/2023
Publisher: 
Halle Institute for Economic Research (IWH), Halle (Saale)
Abstract: 
Competition in the U.S. appears to have declined. One contributing factor may have been heterogeneity in the availability of credit during the financial crisis. I examine the impact of product market peer credit constraints on long-run competitive outcomes and behavior among non-financial firms. I use measures of lender exposure to the financial crisis to create a plausibly exogenous instrument for product market credit availability. I find that credit constraints of product market peers positively predict growth in sales, market share, profitability, and markups. This is consistent with the notion that firms gained at the expense of their credit constrained peers. The relationship is robust to accounting for other sources of inter-firm spillovers, namely credit access of technology network and supply chain peers. Further, I find evidence of strategic investment, i.e. the idea that firms increase investment in response to peer credit constraints to commit to deter entry mobility. This behavior may explain why temporary heterogeneity in the availability of credit appears to have resulted in a persistent redistribution of output across firms.
Subjects: 
financial crisis
instrumental variables
long-run effects
spillovers
strategic behavior
JEL: 
G01
G21
G30
L11
Document Type: 
Working Paper

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