Verlag:
LUISS Guido Carli, Department of Economics and Business, Arcelli Centre for Monetary and Financial Studies, Rome
Zusammenfassung:
We test whether financial fluctuations affect firms' decisions through their impact on banks' cost of funding. We exploit two shocks to Italian banks' CDS spreads and equity valuations: the 2007Ð 2009 financial crisis and the 2010Ð2012 sovereign debt crisis. Using newly available data linking over 3,000, mostly privately held, non-financial firms to their bank(s), we find that increases in banks' CDS spreads, and decreases in their equity valuations, lead younger and smaller firms to cut investment, employment, and borrowing. We conclude that financial market fluctuations affect even private firms through their banks' cost of funding.