The riskiness of credit allocation and financial stability

2022. Journal of Financial Intermediation. https://doi.org/10.1016/j.jfi.2022.100980

Peichu Xie, Jérôme Vandenbussche, Claudio Raddatz K, Qianying Chen, Luis Brandão-Marques

Abstract:

Using firm-level data for 42 countries over 1991-2016, we show that the extent to which credit flows to relatively risker firms—which we label riskiness of credit allocation—is a distinct dimension of the credit cycle that helps predict downside risks to GDP growth and financial stress episodes, one to three years ahead, even after controlling for the magnitude of credit expansions and for financial conditions. The riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment, but its predictive power does not simply come from its relation to these correlates of future financial stress.

Palabras claves: Corporate debt, Credit allocation, Credit risk, Financial leverage, Financial vulnerability, Investor sentiment, Financial crises, Financial stability

Acceder a la publicación completa