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Job Market Seminar: Gustavo S. Cortes - University of Illinois at Urbana-Champaign
Friday 01 February 2019, 04:30pm - 06:00pm

Credit Shock Propagation in Firm Networks: Evidence from Government Bank Credit Expansions (joint with Bernardus van Doornik and Thiago C. Silva)


We study how bank credit shocks propagate through supplier–customer firm networks. We do so using administrative data that covers the near-universe of firm-to-firm transactions in Brazil around the debacle of Lehman Brothers. Using the counter-cyclical reaction of government owned banks in Brazil after Lehman’s failure as a policy experiment, we show that credit shocks originated in bank–firm relationships are transmitted throughout the network of suppliers and customers, with measurable consequences for firms’ real outcomes and survival probability. A firm with direct and indirect access to government credit (through its customers or suppliers) observed a 12.5% greater survival probability, vis-à-vis 4% when the firm has only direct access. Critically, we uncover drawbacks of these interventions, including a persistent increased concentration in the market power of firms that benefited from government liquidity.


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