Paper #1730

Title:

Production and financial networks in interplay: Crisis evidence from supplier-customer and credit registers

Authors:

Kenan Huremovic, Jiménez Gabriel, Enrique Moral-Benito, José-Luis Peydró and Fernando Vega-Redondo

Date:

July 2020

Abstract:

We show that bank shocks originating in the financial sector propagate upstream and downstream along the production network and triple the impact of direct bank shocks. Our identification relies on the universe of both supplier-customer transactions and bank loans in Spain, a standard operationalization of credit-supply shocks during the 2008-09 global crisis, and the proposed theoretical framework. The impact on real effects is strong, and similarly so, when considering: (i) direct bank shocks to firms versus first-order interfirm contagion; (ii) first-order versus higher-order network effects; (iii) downstream versus upstream propagation; (iv) firm-specific versus economy-wide shocks. Market concentration amplifies these effects.

Keywords:

networks; supply chains; shock propagation; credit supply; real effects of finance

JEL codes:

D85; E44; E51; G01; G21

Area of Research:

Finance and Accounting

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