Seminario de Finanzas y Contabilidad

25 de julio, 13:00 horas, sala P302, Facultad de Economía y Negocios

Título: Market Demand and Default Risk in Small Business Finance: Evidence from the Financial Crisis?

Expositor: Patrick Behr, profesor Asociado de Brazilian School of Public and Business Administration (EBAPE) of the Getulio Vargas Foundation (FGV)

We analyze the effect of an exogenous shock to demand in product markets on the default risk of small businesses. Using the 2007-2008 financial crisis as exogeneous variation, we explore the fact that firms from export intense sectors were hit differently by the shock than firms from less export dependent sectors. We find that the shock to market demand increased the default risk of firms from the more affected production sector by 30 percent relative to the overall sample average default risk. This effect is particularly pronounced in areas with fiercer bank competition. Higher default risk of firms may explain the more restrictive credit supply by lenders generally witnessed during a financial crisis and is consistent with firms’ changed investment and financing policies as a consequence of such a crisis.