NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Corporate Resilience to Banking Crises: The Roles of Trust and Trade Credit

Ross Levine, Chen Lin, Wensi Xie

NBER Working Paper No. 22153
Issued in April 2016
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, International Finance and Macroeconomics, Labor Studies

Are firms more resilient to systemic banking crises in economies with higher levels of social trust? Using firm-level data in 34 countries from 1990 through 2011, we find that liquidity-dependent firms in high-trust countries obtain more trade credit and suffer smaller drops in profits and employment during banking crises than similar firms in low-trust economies. The results are consistent with the view that when banking crises block the normal banking-lending channel, greater social trust facilitates access to informal finance, cushioning the effects of these crises on corporate profits and employment.

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Document Object Identifier (DOI): 10.3386/w22153

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