DISCUSSION. The causal effect of credit guarantees for SMEs: evidence from Italy. by Alessio D Ignazio and Carlo Menon

Similar documents
The Labor Market Consequences of Adverse Financial Shocks

The Labor Market Consequences of Adverse Financial Shocks

Financial Innovation and Borrowers: Evidence from Peer-to-Peer Lending

Discussion of Relationship and Transaction Lending in a Crisis

What determines government spending multipliers?

Effects of working part-time and full-time on physical and mental health in old age in Europe

1. Logit and Linear Probability Models

Do Peer Firms Affect Corporate Financial Policy?

Cash holdings determinants in the Portuguese economy 1

Bank Lending Shocks and the Euro Area Business Cycle

Non-Performing Loans and the Supply of Bank Credit: Evidence from Italy

State Dependency of Monetary Policy: The Refinancing Channel

CORPORATE TAX INCENTIVES AND CAPITAL STRUCTURE: EVIDENCE FROM UK TAX RETURN DATA

Economi Capital. Tiziano Bellini. Università di Bologna. November 29, 2013

Theory Appendix for: Buyer-Seller Relationships in International Trade: Evidence from U.S. State Exports and Business-Class Travel

14.02 Solutions Quiz III Spring 03

Acemoglu, et al (2008) cast doubt on the robustness of the cross-country empirical relationship between income and democracy. They demonstrate that

Investment Financing and Financial Development: Evidence from Viet Nam

ECON 4325 Monetary Policy Lecture 13: Summary. Martin Blomhoff Holm

Fiscal Policy Uncertainty and the Business Cycle: Time Series Evidence from Italy

Sovereign default and debt renegotiation

Commodity Prices, Commodity Currencies, and Global Economic Developments

Online Appendix to Grouped Coefficients to Reduce Bias in Heterogeneous Dynamic Panel Models with Small T

Access to finance and foreign technology upgrading : Firm-level evidence from India

Interest rate models and Solvency II

Private and public risk-sharing in the euro area

Frequency of Price Adjustment and Pass-through

Investment and the weighted average cost of capital: new micro evidence for France

Graduate Development Economics. Economics 270c. University of California, Berkeley. Department of Economics. Professor Ted Miguel

Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach

Applied Economics. Quasi-experiments: Instrumental Variables and Regresion Discontinuity. Department of Economics Universidad Carlos III de Madrid

Bank Capital, Agency Costs, and Monetary Policy. Césaire Meh Kevin Moran Department of Monetary and Financial Analysis Bank of Canada

Does Investing in School Capital Infrastructure Improve Student Achievement?

Trade Costs and Job Flows: Evidence from Establishment-Level Data

Empirical Approaches in Public Finance. Hilary Hoynes EC230. Outline of Lecture:

slides chapter 6 Interest Rate Shocks

One period models Method II For working persons Labor Supply Optimal Wage-Hours Fixed Cost Models. Labor Supply. James Heckman University of Chicago

International Competition and Inflation: A New Keynesian Perspective. Luca Guerrieri, Chris Gust, David López-Salido. Federal Reserve Board.

Peer Effects in Retirement Decisions

Leverage, Re-leveraging, and Household Spending

Advanced Topic 7: Exchange Rate Determination IV

Corporate Strategy, Conformism, and the Stock Market

What You Don t Know Can t Help You: Knowledge and Retirement Decision Making

Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates

Matthias Dischinger; Nadine Riedel: Corporate Taxes, Profit Shifting and the Location of Intangibles within Multinational Firms

Firing Costs, Employment and Misallocation

LECTURE 5 The Effects of Fiscal Changes: Aggregate Evidence. September 19, 2018

What do frictions mean for Q-theory?

Aggregate Supply. Reading. On real wages, also see Basu and Taylor (1999), Journal of Economic. Mankiw, Macroeconomics: Chapters 9.4 and 13.1 and.

Entry, Trade Costs and International Business Cycles

Does Raising Contribution Limits Lead to More Saving? Evidence from the Catch-up Limit Reform

14.471: Fall 2012: Recitation 3: Labor Supply: Blundell, Duncan and Meghir EMA (1998)

DIFFERENCE DIFFERENCES

Chapter 6 Growth and Finance

Prospect Theory and Asset Prices

Testing the predictions of the Solow model:

The Capital Asset Pricing Model CAPM: benchmark model of the cost of capital

Aggregate Supply. Dudley Cooke. Trinity College Dublin. Dudley Cooke (Trinity College Dublin) Aggregate Supply 1 / 38

The Persistent Effect of Temporary Affirmative Action: Online Appendix

Discussion of The Cyclicality of Add-On Pricing Boskovic/Kapoor/Markiewicz/Scholnick

Evaluating the effect of local monitoring on nuclear safety

Competition and the pass-through of unconventional monetary policy: evidence from TLTROs

Investment and the weighted average cost of capital: new firm-level evidence for France

School of Economics and Management

Modelling Returns: the CER and the CAPM

Trinity College and Darwin College. University of Cambridge. Taking the Art out of Smart Beta. Ed Fishwick, Cherry Muijsson and Steve Satchell

The causal effects of an industrial policy

Liquidity Regulation and Credit Booms: Theory and Evidence from China. JRCPPF Sixth Annual Conference February 16-17, 2017

Country Spreads and Emerging Countries: Who Drives Whom? Martin Uribe and Vivian Yue (JIE, 2006)

Predictive Regressions: A Present-Value Approach (van Binsbe. (van Binsbergen and Koijen, 2009)

DETERMINANTS OF FIRMS INVESTMENT IN SPAIN: THE ROLE OF POLICY UNCERTAINTY

MODELING THE INFLUENCE OF FISCAL POLICY ON INFLATION

Capital structure and profitability of firms in the corporate sector of Pakistan

Banking Globalization, Monetary Transmission, and the Lending Channel

Day 3 Simple vs Compound Interest.notebook April 07, Simple Interest is money paid or earned on the. The Principal is the

Consumption and Portfolio Decisions When Expected Returns A

Introduction Example 1 Example 2 Example 3 Conclusion. Identification. Toni M. Whited. SFS Cavalcade, May 2014

1. Operating procedures and choice of monetary policy instrument. 2. Intermediate targets in policymaking. Literature: Walsh (Chapter 11, pp.

Exercises on the New-Keynesian Model

Firm-specific Exchange Rate Shocks and Employment Adjustment: Theory and Evidence

Do labor market programs affect labor force participation?

The Econometrics of Financial Returns

Date of Speculative Attack-Crises of Exchange Rates

Essays on Executive Compensation

Comprehensive Exam. August 19, 2013

Reading map : Structure of the market Measurement problems. It may simply reflect the profitability of the industry

Structural Models of Credit Risk and Some Applications

Debt Covenants and the Macroeconomy: The Interest Coverage Channel

Optimal Water-Utility Infrastructure Investment: Testing Effects of Population, Capital, and Policy on the Investment Decision

The Basic New Keynesian Model

Gamma. The finite-difference formula for gamma is

Pricing of minimum interest guarantees: Is the arbitrage free price fair?

avoidance Alex Young North Dakota State University September 2, 2015 Abstract

Trading and Enforcing Patent Rights. Carlos J. Serrano University of Toronto and NBER

Exchange Rate Exposure and Firm-Specific Factors: Evidence from Turkey

Poultry in Motion: A Study of International Trade Finance Practices

Derivation Of The Capital Asset Pricing Model Part I - A Single Source Of Uncertainty

Online Appendix for Missing Growth from Creative Destruction

António Afonso, Jorge Silva Debt crisis and 10-year sovereign yields in Ireland and in Portugal

The Young, the Old, and the Restless: Demographics and Business Cycle Volatility. Nir Jaimovich and Henry Siu

Transcription:

DISCUSSION The causal effect of credit guarantees for SMEs: evidence from Italy by Alessio D Ignazio and Carlo Menon Inga Heiland Ifo Institute, Munich 18/10/2013

Discussion of the causal effect of credit guarantees for SMEs 1 / 9 Summary Empirical study on the effects of a public credit guarantee scheme - large Italian region, starting 2008, 20 mn. Euro per year - eligible firms: SMEs, not in economic or financial distress, sensitive sectors - 200 (152) treated firms, 6000 controls

Discussion of the causal effect of credit guarantees for SMEs 1 / 9 Summary Empirical study on the effects of a public credit guarantee scheme - large Italian region, starting 2008, 20 mn. Euro per year - eligible firms: SMEs, not in economic or financial distress, sensitive sectors - 200 (152) treated firms, 6000 controls Findings - shift in debt structure towards long-term - no effects on total debt or real outcomes - slight increase in default probability

Discussion of the causal effect of credit guarantees for SMEs 2 / 9 Empirical challenges to identification of causal effects Endogenous selection - policy makers select banks - firms select banks - banks select firms

Discussion of the causal effect of credit guarantees for SMEs 2 / 9 Empirical challenges to identification of causal effects Endogenous selection - policy makers select banks - firms select banks - banks select firms Addressed with IV estimation - instrument: lending relationship with bank B in t 3 that became covenant after that policy had been planned

Discussion of the causal effect of credit guarantees for SMEs 2 / 9 Empirical challenges to identification of causal effects Endogenous selection - policy makers select banks - firms select banks - banks select firms Addressed with IV estimation - instrument: lending relationship with bank B in t 3 that became covenant after that policy had been planned and supported with - demanding falsification tests - DiD-matching estimation

Discussion of the causal effect of credit guarantees for SMEs 3 / 9 IV Estimation: Wooldridge s Procedure 18.1 IV with generated instrument - second stage: y itmr = α + βt it + X it γ + FE + ɛ it - first stage: instead of BankB t 3 as instrument for T it, use Pr(T it = 1 X, BankB t 3 ) =Φ(α + φ 1 BankB i,t 3 + φ 2 Eligible i,t 3 + φ 3 X i0 )

Discussion of the causal effect of credit guarantees for SMEs 3 / 9 IV Estimation: Wooldridge s Procedure 18.1 IV with generated instrument - second stage: y itmr = α + βt it + X it γ + FE + ɛ it - first stage: instead of BankB t 3 as instrument for T it, use Pr(T it = 1 X, BankB t 3 ) =Φ(α + φ 1 BankB i,t 3 + φ 2 Eligible i,t 3 + φ 3 X i0 ) - this can be more efficient if instrument is binary - but it is not perfectly clear where the identifying variation comes from - technically, even if there was no instrument excluded from X, identification can be reached of the non-linearity of Pr( ) (!?)

Discussion of the causal effect of credit guarantees for SMEs 3 / 9 IV Estimation: Wooldridge s Procedure 18.1 IV with generated instrument - second stage: y itmr = α + βt it + X it γ + FE + ɛ it - first stage: instead of BankB t 3 as instrument for T it, use Pr(T it = 1 X, BankB t 3 ) =Φ(α + φ 1 BankB i,t 3 + φ 2 Eligible i,t 3 + φ 3 X i0 ) Exclusion restriction: E(ɛ T, X, X 0, BankB t 3, Eligible t 3 ) = E(ɛ T, X)

Discussion of the causal effect of credit guarantees for SMEs 3 / 9 IV Estimation: Wooldridge s Procedure 18.1 IV with generated instrument - second stage: y itmr = α + βt it + X it γ + FE + ɛ it - first stage: instead of BankB t 3 as instrument for T it, use Pr(T it = 1 X, BankB t 3 ) =Φ(α + φ 1 BankB i,t 3 + φ 2 Eligible i,t 3 + φ 3 X i0 ) Exclusion restriction: E(ɛ T, X, X 0, BankB t 3, Eligible t 3 ) = E(ɛ T, X) Eligible t 3 should certainly be in the second stage

Discussion of the causal effect of credit guarantees for SMEs 3 / 9 IV Estimation: Wooldridge s Procedure 18.1 IV with generated instrument - second stage: y itmr = α + βt it + X it γ + FE + ɛ it - first stage: instead of BankB t 3 as instrument for T it, use Pr(T it = 1 X, BankB t 3 ) =Φ(α + φ 1 BankB i,t 3 + φ 2 Eligible i,t 3 + φ 3 X i0 ) Exclusion restriction: E(ɛ T, X, X 0, BankB t 3, Eligible t 3 ) = E(ɛ T, X) Eligible t 3 should certainly be in the second stage Falsification test I alleviates this concern to some extent

Discussion of the causal effect of credit guarantees for SMEs 3 / 9 IV Estimation: Wooldridge s Procedure 18.1 IV with generated instrument - second stage: y itmr = α + βt it + X it γ + FE + ɛ it - first stage: instead of BankB t 3 as instrument for T it, use Pr(T it = 1 X, BankB t 3 ) =Φ(α + φ 1 BankB i,t 3 + φ 2 Eligible i,t 3 + φ 3 X i0 ) Exclusion restriction: E(ɛ T, X, X 0, BankB t 3, Eligible t 3 ) = E(ɛ T, X) Eligible t 3 should certainly be in the second stage Falsification test I alleviates this concern to some extent Eligible t 3 should also be a matching variable in the DiD-matching analysis

Discussion of the causal effect of credit guarantees for SMEs 4 / 9 Empirical strategy Selection issues adressed? - bank selection by policy makers - bank selection by firms - selection of firms by banks - selection of bank A by bank B? - how exogenous was the acquisition of A?

Discussion of the causal effect of credit guarantees for SMEs 4 / 9 Empirical strategy Selection issues adressed? - bank selection by policy makers - bank selection by firms - selection of firms by banks - selection of bank A by bank B? - how exogenous was the acquisition of A? Sample selection? - firms that exit between 2005-2010 are excluded exit exogenous?

Discussion of the causal effect of credit guarantees for SMEs 4 / 9 Empirical strategy Selection issues adressed? - bank selection by policy makers - bank selection by firms - selection of firms by banks - selection of bank A by bank B? - how exogenous was the acquisition of A? Sample selection? - firms that exit between 2005-2010 are excluded exit exogenous? Outcome and treatment variable: - could you look at turnover, employment, profits? - amount of the guaranteed loans instead of binary indicator?

Discussion of the causal effect of credit guarantees for SMEs 5 / 9 Estimation equation y itmr = α + βt it + X it γ + δ i + µ mt + ρ rt + ɛ it This suggests that lending relationships with all banks are affected in the same way

Discussion of the causal effect of credit guarantees for SMEs 5 / 9 Estimation equation y itmr = α + βt it + X it γ + δ i + µ mt + ρ rt + ɛ it This suggests that lending relationships with all banks are affected in the same way Theory suggests effect is different (if not opposite) for covenant and non-covenant bank

Discussion of the causal effect of credit guarantees for SMEs 5 / 9 Estimation equation y itmr = α + βt it + X it γ + δ i + µ mt + ρ rt + ɛ it This suggests that lending relationships with all banks are affected in the same way Theory suggests effect is different (if not opposite) for covenant and non-covenant bank Should the treatment not be covenant bank specific, i.e. T imt?

Discussion of the causal effect of credit guarantees for SMEs 5 / 9 Estimation equation y itmr = α + βt it + X it γ + δ i + µ mt + ρ rt + ɛ it This suggests that lending relationships with all banks are affected in the same way Theory suggests effect is different (if not opposite) for covenant and non-covenant bank Should the treatment not be covenant bank specific, i.e. T imt? - additionality could be assessed by looking at total debt (across all banks)

Discussion of the causal effect of credit guarantees for SMEs 5 / 9 Estimation equation y itmr = α + βt it + X it γ + δ i + µ mt + ρ rt + ɛ it This suggests that lending relationships with all banks are affected in the same way Theory suggests effect is different (if not opposite) for covenant and non-covenant bank Should the treatment not be covenant bank specific, i.e. T imt? - additionality could be assessed by looking at total debt (across all banks) - in principle, T imt would allow use of firm year effects firm selection by banks or by themselves addressed

Discussion of the causal effect of credit guarantees for SMEs 5 / 9 Estimation equation y itmr = α + βt it + X it γ + δ i + µ mt + ρ rt + ɛ it This suggests that lending relationships with all banks are affected in the same way Theory suggests effect is different (if not opposite) for covenant and non-covenant bank Should the treatment not be covenant bank specific, i.e. T imt? - additionality could be assessed by looking at total debt (across all banks) - in principle, T imt would allow use of firm year effects firm selection by banks or by themselves addressed - bank firm effects could also be used bank selection by policymakers addressed (to some extent)

Discussion of the causal effect of credit guarantees for SMEs 6 / 9 Interpretation of results Theory is inclusive about the direction of the effects

Discussion of the causal effect of credit guarantees for SMEs 6 / 9 Interpretation of results Theory is inclusive about the direction of the effects it s an empirical question

Discussion of the causal effect of credit guarantees for SMEs 6 / 9 Interpretation of results Theory is inclusive about the direction of the effects it s an empirical question it depends very much on the particular circumstances

Discussion of the causal effect of credit guarantees for SMEs 6 / 9 Interpretation of results Theory is inclusive about the direction of the effects it s an empirical question it depends very much on the particular circumstances it s not easy to draw conclusions from findings

Discussion of the causal effect of credit guarantees for SMEs 6 / 9 Interpretation of results Theory is inclusive about the direction of the effects it s an empirical question it depends very much on the particular circumstances it s not easy to draw conclusions from findings To understand the results, it would be good to know more about the specific context

Discussion of the causal effect of credit guarantees for SMEs 6 / 9 Interpretation of results Theory is inclusive about the direction of the effects it s an empirical question it depends very much on the particular circumstances it s not easy to draw conclusions from findings To understand the results, it would be good to know more about the specific context Lower interest rates - Bank s incentives? - Did other banks have the opportunity to become covenants? - Do firms pay an insurance premium? Is it fair?

Discussion of the causal effect of credit guarantees for SMEs 6 / 9 Interpretation of results Theory is inclusive about the direction of the effects it s an empirical question it depends very much on the particular circumstances it s not easy to draw conclusions from findings To understand the results, it would be good to know more about the specific context Adjustment towards LT finance - Could banks/firms decide upon the amortization period? - Does this reflect an economic decision or is it because loans backed by the government by the government typically have a 5-year amortization schedule?

Discussion of the causal effect of credit guarantees for SMEs 7 / 9 Interpretation of results In which direction does the endogeneity bias actually go? - OLS vs IV results suggest that firms with higher interest rates, higher total debt and lower default probability are selected/select themselves

Discussion of the causal effect of credit guarantees for SMEs 7 / 9 Interpretation of results In which direction does the endogeneity bias actually go? - OLS vs IV results suggest that firms with higher interest rates, higher total debt and lower default probability are selected/select themselves DiD-Matching - I think what you estimate is an ATT, not ATE not directly comparable to IV/OLS estimates

Discussion of the causal effect of credit guarantees for SMEs 8 / 9 Very minor comments, but maybe helpful - p7, line 17: contracts backed by guarantees or not backed by guarantees? - eqn (1): ɛ should have mr-index - p12, line 17: redundant from - p13, line 16: redundant that - p14, 3rd paragraph: were exactly is it shown that lagged creditor bank is good predictor? - eqn (2): should the t 3-Index not be T 3? - p16, 1st paragraph: what is the data source of the variable eligible? - p19, line 10: redundant the - eqn (3): dsubsidy should have an i-index? - tab 12, column (2): either the sign of the treated*post coefficient or the heading does not match with the text on p20

Thank you for your attention! Discussion of the causal effect of credit guarantees for SMEs 9 / 9