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

Dias, Daniel A.; Marques, Carlos Robalo

doi:10.17016/ifdp.2019.1250

Cited by 2 publications

(2 citation statements)

References 29 publications

(55 reference statements)

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“…Firms withstanding the crisis have been able in the following years to reinforce their market share, hiring new workers and therefore raising the concentration level of these quantities in the economy, in a sort of survival of the fittest mechanism. This interpretation is in line with the empirical studies of Reint et al (2017) and Dias and Marques (2020), who observe that the Fig. 3 The distribution of firms' bank debt-to-total assets ratio by the deciles of the book value of total assets, including all industries probability of survival of inefficient firms has been extremely reduced after the crisis.…”

Section: The Allocation Of Bank Loans In Spain (1999-2014)supporting

confidence: 88%

Credit allocation and the financial crisis: evidence from Spanish companies

Petrović

Teglio

Alfarano

2022

J Econ Interact Coord

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The worldwide financial crisis of 2007-2008 raised serious concerns about the soundness of banks' activities and about the extent to which banking regulation should supervise banks' investment decisions. We contribute to this topic by examining the Spanish case, which has been emblematic of the bubble and burst dynamics in the credit market. In particular, we study the allocation of bank credit among Spanish companies from 1999 to 2014, showing that larger companies accumulated greater amounts of bank loans per unit of total assets, thus leading to a notable concentration. We also find that, during the Spanish boom period, bank loans shifted from the manufacturing to the construction industry, and in particular to the largest companies of the latter sector. This happened in spite of the high leverage of large construction firms, which was increasing also due to their growing debt. We argue that the higher operating benefits, reflecting the increase of the housing price during the boom period, overvalued construction firms as potential borrowers. The bankruptcy of several large construction companies during the Spanish crisis supports the need for monitoring and regulation, to avoid an excessive concentration of bank credit to a few large companies, especially if they belong to a specific sector.

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Section: The Allocation Of Bank Loans In Spain (1999-2014)supporting

confidence: 88%

Credit allocation and the financial crisis: evidence from Spanish companies

Petrović

Teglio

Alfarano

2022

J Econ Interact Coord

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“…Reis (2013) emphasizes misallocation of capital inflows across sectors, with an expansion of the low-productivity non-tradable sector in 2000–2007. In more recent work with data up to 2015, Dias and Marques (2018) show that the Portuguese crisis had an overall cleansing effect on productivity in 2011–2012, mainly through the exit of less productive firms, and a mixed impact on factor reallocation, with firm productivity becoming more correlated with employment growth but (in non-tradable services) less with capital growth. Blattner et al (2019) provide evidence that the weakness of the Portuguese banking sector has contributed to low productivity growth in the aftermath of the sovereign debt crisis.…”

Section: Motivation and Main Findingsmentioning

confidence: 99%

Bank credit allocation and productivity: stylised facts for Portugal

Azevedo

Mateus

Pina

2021

SEF

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Purpose The linkages between credit allocation and productivity have particular relevance in Portugal. This study aims to investigate whether credit extended by the Portuguese banking system has been allocated to the most productive firms within each sector. Design/methodology/approach With a data set covering 95% of total outstanding credit to non-financial corporations recorded in the Portuguese credit register, the authors investigate whether outstanding loans by resident banks to 64 economic sectors have been granted to the most productive firms. First, the authors estimate a baseline, reduced-form model of credit reallocation, where the parameter of interest gives the response of total credit granted to each firm to its level of productivity. Second, the authors assess how this response is affected by the share of credit allocated to unproductive firms. Third, the authors redo the analysis with credit granted to each firm by each banking group, instead of by the entire banking system, so that bank indicators can be taken on board. Findings The authors find evidence of misallocation, which reflects the joint effects of credit supply and credit demand decisions taken over the course of time, and the adverse cyclical developments following the accumulation of imbalances in the Portuguese economy for a protracted period. In 2008–2016, the share of outstanding credit granted to firms with very low productivity (measured or inferred) was always substantial, peaking at 44% in 2013, and declining afterwards with the rebound in economic activity and the growing allocation of new loans towards lower risk firms and away from higher risk firms. Furthermore, the authors find that misallocation is associated with slower reallocation. The responsiveness of credit growth to firm relative productivity is much lower in sectors with relatively more misallocated credit and when banks have a high share of such credit in their portfolios. Originality/value Banking system distortions are often mentioned as potential or likely culprits for capital misallocation, but they are not empirically analysed with credit data. The ability to explicitly analyse bank credit and link it to variables pertaining to both firms and banks is a novel feature relative to most previous studies, which largely rely on firm-level or sectoral data alone.

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

Cited by 2 publications

References 29 publications

Credit allocation and the financial crisis: evidence from Spanish companies

Credit allocation and the financial crisis: evidence from Spanish companies

Bank credit allocation and productivity: stylised facts for Portugal

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