Bank Distress and Firms’ Investment during the Great Recession - Evidence from Ireland

Spatareanu, Mariana and Manole, Vlad and Kabiri, Ali (2015) Bank Distress and Firms’ Investment during the Great Recession - Evidence from Ireland. Applied Economics Letters. ISSN 1350-4851 (Print), 1466-4291 (Online)

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Abstract

This paper investigates the impact of bank distress on firms’ performance using unique data during the Great Recession for Ireland. The results show that bank distress, measured as banks’ credit default swap spreads (CDS), has negatively and statistically significantly affected firms’ investment expenditures. Interestingly, firms with access to alternative sources of external finance are not impacted by bank distress. The results are robust to accounting for external finance dependence, demand and trade sensitivities, which affect firm performance and the demand for credit.

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