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

By Ross Levine, Chen Lin, Wensi Xie. Journal of Financial and Quantitative Analysis, 2016

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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 bank-lending channel, greater social trust facilitates access to informal finance, cushioning the effects of these crises on corporate profits and employment.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/f11fd96c8decfee9c81149f6f52d12ad84b81e20