No. 281 Lines of Credit and Investment: Firm-Level Evidence of Real Effects of the Financial Crisis

Karolina Holmberg

November 2013

Abstract

Using Swedish bank lending data, investment data and accounting data, I examine how the financial crisis affected corporate investment through its effect on credit availability. Sensitivity to a credit supply shock is measured as credit reserves, defined as unused credit on lines of credit. I find that firms with low credit reserves reduced investment significantly more than other firms. However, it is not possible to determine that this relationship was caused by a shift in the supply of credit. Overall, I find no statistically strong evidence that the decline in investment was exacerbated by a contraction in credit supply.

Keywords:

Corporate investment, Crisis, Financial Markets and the Macroeconomy, Lines

of Credit

JEL classifications:

E22, E44, G01, G31, G32