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The Anatomy of a Credit Supply Shock: Evidence from an Internal Credit Market

  • José María Liberti and Jason Sturgess
Abstract

We investigate how financial contracting interacts with lending-channel effects by tracing the anatomy of a credit supply shock using micro-level data from a multinational bank. Borrowers with stronger lending relationships, higher nonlending revenues, and those that pledge collateral, especially outside assets and real estate, experience less credit rationing. Consistent with a tightening of financing constraints post shock, borrower composition shifts toward larger and less risky firms, and loans exhibit higher collateralization rates. Our analysis highlights the value of relationships and suggests that relationship banking is a channel through which borrowers can mitigate lending-channel effects.

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Corresponding author
* Liberti, j-liberti@kellogg.northwestern.edu, Northwestern University Kellogg School of Management and DePaul University; Sturgess (corresponding author), j.sturgess@qmul.ac.uk, Queen Mary University of London.
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1

We thank Emilia Garcia, Jarrad Harford (the editor), Vladimir Komotin, Mauricio Larrain, Andrea Presbitero, Amiyatosh Purnanandam, Nicolas Serrano-Velarde, Amit Seru, David Thesmar, Gregory Udell (the referee), and seminar participants at the 2013 Utah Winter Finance Conference, the 2013 Financial Management Association Meetings, the 2013 Midwest Finance Association Meetings, the 2013 Winter Conference on Financial Intermediation, the 2012 Center for Economic Policy Research–European Central Bank Conference on Small Business Lending, the 2014 Money & Finance Research (MoFiR) Workshop on Banking, Georgetown University, Northwestern University Kellogg School of Management, Tilburg University, and University of Warwick Business School for helpful discussions.

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