Credit Supply and (In)organic Growth

48 Pages Posted: 1 Dec 2015 Last revised: 18 Dec 2020

See all articles by Tobias Berg

Tobias Berg

Frankfurt School of Finance & Management

Daniel Streitz

Copenhagen Business School

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision

Date Written: September 1, 2020

Abstract

We document a major mechanism – inorganic growth – which drives a wedge between micro-study effects of credit supply shocks and aggregate effects. Exploiting a quasi-exogenous positive shock to credit supply, we document that affected firms borrow larger amounts and exhibit stronger asset, employment, and sales growth.All growth effects, however, are inorganic, and the quality of the credit-supply-induced acquisition activity is low. The market for inorganic growth is large, accounting for 4% of GDP, and we therefore argue it is important to look at inorganic growth in any study that is interested in understanding aggregate effects of financial frictions. We provide a method for adjusting for inorganic growth components empirically that is generally applicable beyond our specific setting.

Keywords: Inorganic Growth, Credit Supply, Real Effects, Securitization

JEL Classification: G21, G23, G32, G32

Suggested Citation

Berg, Tobias and Streitz, Daniel and Wedow, Michael, Credit Supply and (In)organic Growth (September 1, 2020). BAFFI CAREFIN Centre Research Paper No. 2015-14, Available at SSRN: https://ssrn.com/abstract=2696906 or http://dx.doi.org/10.2139/ssrn.2696906

Tobias Berg (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Daniel Streitz

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision ( email )

Frankfurt a.M.
Germany

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