Heterogeneous Effects of Credit Constraints on SMEs' Employment: Evidence from the Great Recession

Arbeitspapier

This paper takes advantage of access to detailed matched bank-firm data to investigate whether and how employment decisions of SMEs have been affected by credit constraints in the wake of the Great Recession. Variability in banks' financial health following the 2008 crisis is used as an exogenous determinant of firms' access to credit. Findings, relative to the Belgian economy, clearly highlight that credit matters. They show that SMEs borrowing money from pre-crisis financially less healthy banks were significantly more likely to be affected by a credit constraint and, in turn, to adjust their labour input downwards than pre-crisis clients of more healthy banks. These results are robust across types of loan applications that were denied credit, i.e. applications to finance working capital, debt or new investments. Yet, estimates also show that credit constraints have been essentially detrimental for employment among SMEs experiencing a negative demand shock or facing strong product market competition. In terms of human resources management, credit constraints are not only found to foster employment adjustment at the extensive margin but also to increase the use of temporary layoff allowances for economic reasons. This outcome supports the hypothesis that short-time compensation programmes contribute to save jobs during recessions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 11257

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions ; Multiple or Simultaneous Equation Models: Instrumental Variables (IV) Estimation ; Firm Behavior: Empirical Analysis ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Labor Force and Employment, Size, and Structure ; Labor Demand
• Subject: SMEs ; banks' financial health ; credit constraints ; employment ; short-time compensation programmes ; Great Recession ; matched bank-firm data

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cornille, David ; Rycx, Francois ; Tojerow, Ilan
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/177061
• Last update: 10.03.2025, 11:45 AM CET