External financial dependence and firms’ crisis performance across Europe

Abstract

How do financial market conditions affect real economic performance? Empirical investigations of this question have often relied on measures of external financial dependence (EFD) that are constructed using US data and applied to other countries under the assumption of a stable industry ranking across countries. This paper exploits unique, comparable survey data from seven European countries to show that correlations of EFD across countries are weak, casting some doubt on this assumption. We then use the novel survey-based EFD index to show that the global financial crisis had a disproportionately negative impact on the real performance of financially dependent firms. Further investigations highlight the importance of supply chains in propagating the credit shock.

Bank bailouts and economic growth: Evidence from cross-country, cross-industry data

“…For observations during 1990-1999, we use the benchmark of Arcand et al (2015), calculated for the 1990s. Finally, for all observations in the 2000s, we use the benchmark of Eppinger and Neugebauer (2017), which is based on exactly this period. The correlation between the 1980s measure and the 1990s measure is equal to 90%, and the one between the 1990s measure and the 2000s measure is equal to 78%.…”