Research

Abstract: In this article, we review the rapidly growing literature on the real effects of banks' corporate credit supply. We cover recent methodological advances and provide an in-depth survey of the existing evidence. The literature consistently shows that credit supply contractions lead to adverse real outcomes, but economic magnitudes vary across samples and identification strategies. This variation has become smaller in more recent work, using highly granular data. We further document heterogeneity in firm outcomes and show that the evidence is more ambiguous for expansionary shocks. Our analysis allows us to identify current knowledge gaps and worthwhile avenues for future research.

Abstract: We study the role of production technology and credit availability for firms' hiring, following a large labor supply shock. Our analysis uses granular firm- and loan-level data and exploits the closure of a foreign manufacturing plant in Belgium. The closure exogenously increased the labor supply to nearby firms, but not to similar, more distant firms. Comparing nearby to distant firms, we find that nearby firms hire significantly more after the plant closure. Yet, the effect is not homogeneous: With a low capital-labor elasticity of substitution, hiring only increases if credit supply enables complementary investments in tangible fixed assets. With a high elasticity of substitution, hiring increases independent of credit supply, but (weakly) more when credit supply restricts such investments. Our results have important implications, e.g., for managing unemployment during financial crises, which simultaneously affect labor and credit supply.

Abstract: We investigate how re-employment after mass layoffs is affected by blue-collar workers' preferences for job security and analyze the implications for firms. Studying the closure of a large manufacturing plant in Belgium, we show how a local blue-collar labor supply shock increases blue-collar employment at affected, relative to unaffected firms, and especially among firms providing higher perceived job security. Hiring firms become more blue-collar- and less capital-intensive, but not more profitable. To accommodate their increased wage bill, they reduce interest expenses by replacing long-term with short-term borrowing. Re-employment outcomes thus respond to workers' preferences but make originally safer firms financially riskier.