Credit Frictions and The Cleansing Effect of Recessions

Osotimehin, Sophie; Pappadà, Francesco

doi:10.1111/ecoj.12319

Cited by 66 publications

(19 citation statements)

References 34 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Barlevy (2003) shows that the presence of financial constraints may reverse the conventional cleansing effect, because reallocation may direct resources from more efficient to less efficient uses. In contrast, Osotimehin and Pappadà (2017) suggest a model where credit frictions reduce the intensity of the cleansing effect but do not reverse it. 1…”

Section: Introductionmentioning

confidence: 86%

Every Cloud has a Silver Lining: Cleansing Effects of the Portuguese Financial Crisis

Dias

Marques

2019

Int. finance discuss. pap.

View full text Add to dashboard Cite

Using firm-level data, this paper shows that the Portuguese financial crisis was a period of intensified productivity-enhancing reallocation. Aggregate productivity gains, both in manufacturing and services, came from relatively higher contributions of entering and exiting firms and from reallocation of resources between surviving firms. At the microlevel, the crisis reduced the probability of survival for high-and low-productivity firms, but it hit low-productivity firms disproportionately harder. We also found important heterogeneous effects across economic sectors regarding input reallocation that underline the importance of using data for the entire economy whenever similar studies are conducted.JEL classification: D24, E32, L25, O47

show abstract

Section: Introductionmentioning

confidence: 86%

Every Cloud has a Silver Lining: Cleansing Effects of the Portuguese Financial Crisis

Dias

Marques

2019

Int. finance discuss. pap.

View full text Add to dashboard Cite

show abstract

“…However, recent studies, especially in the field of firm dynamics (including firm exit), consider the role of credit market frictions and/or financing constraints (e.g., Cooley and Quadrini 2001;Osotimehin and Pappadà 2015;Arellano et al 2012) and Albuquerque and Hopenhayn 2004). The Btoy^model considering the role of financial constraints in the context of firm dynamics is based on Evans and Jovanovic (1989).…”

Section: A Brief Literature Reviewmentioning

confidence: 99%

“…These authors consider an exogenous exit, i.e., firms become unproductive and exit. Osotimehin and Pappadà (2015) follow Cooley and Quadrini (2001) but consider endogenous exit. According to their model, firm selection is influenced by imperfections in the credit market: productive units can be forced to exit due to credit constraints, whereas unproductive units can survive.…”

Section: A Brief Literature Reviewmentioning

confidence: 99%

Economic and financial determinants of firm bankruptcy: evidence from the French food industry

Aleksanyan

Huiban

2016

Rev Agric Food Environ Stud

View full text Add to dashboard Cite

Despite the strong resilience of the French food industry during the recent economic crisis, the bankruptcy rate for this sector has dramatically increased since 2010. This paper focuses on the economic and financial determinants of firm exit due to bankruptcy in the French food industry and compares them with those for other manufacturing industries. Based on a large sample of firm-level data for the period 2001-2012, we show that the bankruptcy risk pattern differs between food industry firms and other manufacturing firms. Firm productivity is an important determinant of a firm's probability of going bankrupt; productivity begins deteriorating 3 years before a failure. Controlling for firm productivity, we also show that credit cost has a positive and significant impact on the probability of bankruptcy. However, we observe smaller effect of credit cost on firms' bankruptcy risk. In contrast, productivity appears to have an important beneficial effect on bankruptcy risk reduction.

show abstract

“…The debate is not settled, as other analysis suggests that the positive effects may dominate the negative ones, even in the presence of financial frictions. Osoteimehin and Pappada (2015) develop a model calibrated to the United States from 1994 to 2012 to illustrate firm dynamics with credit frictions and endogenous firm entry and exit to test the cleansing hypothesis of recessions. The model simulates a productivity shock and a financial crisis shock, both with and without financial frictions.…”

Section: Business Cycles Finance and Productivitymentioning

confidence: 99%

Finance and Productivity: A Literature Review

Heil

2018

Journal of Economic Surveys

View full text Add to dashboard Cite

This paper surveys a broad range of studies and highlights the main findings of the empirical literature regarding business finance and productivity. Numerous studies analyse the productivity effects of financial development and frictions. The results suggest the following: (1) Financial development likely has favourable effects on productivity growth, (2) financial frictions that impede the efficient flow of finance can mitigate the positive effects through a variety of channels and (3) the magnitudes of productivity costs of financial frictions generally appear modest in financially developed economies but are considerably larger in developing economies. The paper also reviews studies of the influence of specific mechanisms on productivity, such as human capital, corporate finance, financial sector efficiency, equity finance and venture capital. Some policies that hamper productivity growth include inefficient insolvency regimes that impede exit of low‐productivity firms, poorly developed contract monitoring and enforcement systems between banks and firms, collateral constraints that impair resource reallocation and imperfect bank supervisory practices that diminish productive capital reallocation through distorted lending practices.

show abstract

Credit Frictions and The Cleansing Effect of Recessions

Cited by 66 publications

References 34 publications

Every Cloud has a Silver Lining: Cleansing Effects of the Portuguese Financial Crisis

Every Cloud has a Silver Lining: Cleansing Effects of the Portuguese Financial Crisis

Economic and financial determinants of firm bankruptcy: evidence from the French food industry

Finance and Productivity: A Literature Review

Contact Info

Product

Resources

About