Italian firms may rely too much on bank credit – research

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Italian firms’ dependence on banks as a source of capital increases their vulnerability in recessions, a working paper published by the Bank of Italy says.

In Bank credit, liquidity and firm-level investment: are recessions different? Ines Buono and Sara Formai combine several different sources to build a dataset on Italian bank lending from 1997 to 2012.

The authors use data on banking mergers and acquisitions to isolate exogenous shocks to banks’ supply of credit to firms. They find that

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