We study the impact of bank credit on firm productivity. We exploit a matched firm-bank database covering all the credit relationships of Italian corporations, together with a natural experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate a production model augmented with financial frictions. We find that a contraction in credit supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation, exporting, and adoption of superior management practices, while a credit expansion has limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for about a quarter of observed the decline in TFP.

• Cover
• Credit Supply and Productivity Growth
  • 1 Introduction
  • 2 Data
    • 2.1 Firm balance-sheets: The CADS dataset
    • 2.2 Firm-bank matched data: The Italian Credit Register
    • 2.3 Additional data sources
    • 2.4 Sample selection and descriptive statistics
  • 3 Theoretical Framework
    • 3.1 Credit supply shocks
    • 3.2 Production with heterogeneous financial frictions
  • 4 Credit Supply Shocks and Firm Production
  • 5 The E ect of Credit Supply on Firm Productivity Growth
    • 5.1 Robustness
    • 5.2 Heterogeneity
    • 5.3 Persistence
    • 5.4 The asymmetric e ect of credit supply shocks
  • 6 The Interbank Market Collapse as a Natural Experiment
  • 7 Beyond Measurement: Channels
    • 7.1 IT-intensity of capital
    • 7.2 Innovation and exporting
    • 7.3 Management practices
    • 7.4 Managerial inattention
  • 8 Conclusion
  • References