CEPR, which takes no institutional policy positions. CREDIT WITHIN THE FIRM ∗ (2011)
BibTeX
@MISC{Schivardi11cepr,which,
author = {Fabiano Schivardi and Luigi Guiso and Luigi Pistaferro and Luigi Guiso and Luigi Pistaferri and Fabiano Schivardi and Luca Deidda and Baris Kaymak and Peter Kuhn},
title = {CEPR, which takes no institutional policy positions. CREDIT WITHIN THE FIRM ∗},
year = {2011}
}
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Abstract
We exploit time variation in the degree of development of local credit markets and matched employer-employee data to assess the role of the firm as an internal credit market. Relative to firms located in more developed credit markets, firms operating in less developed local credit markets can offer a flatter wage-tenure profile to lend implicitly to their workers or a steeper profile to implicitly borrow from them. We find that firms operating in less financially developed markets offer lower entry wages but faster wage growth than those offered by firms in more financially developed markets, helping firms finance their operations by raising funds from workers. Because we control for local market effects and only exploit time variation in the degree of local financial development induced by an exogenous liberalization, the effect we find is unlikely to reflect unobserved local factors that systematically affect wage tenure profiles. The reliance on implicit credit flows is more important for firms with more difficult access to bank credit and for workers less likely to face credit constraints. The amount of credit generated by implicit lending within the firm is economically important and can be as large as 30 % of bank lending. Consistent with credit market imperfections opening up trade opportunities within the
Keyphrases
institutional policy position developed market local credit market entry wage exploit time variation implicit credit flow unobserved local factor wage growth local market effect time variation difficult access steeper profile flatter wage-tenure profile implicit lending internal credit market local financial development bank lending credit market imperfection wage tenure profile bank credit credit constraint developed local credit market trade opportunity exogenous liberalization developed credit market
