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We study the effects of financial frictions on firm exit when firms face large liquidity shocks. We develop a simple model of firm cost-minimization that introduces a financial friction that limits firms’ borrowing capacity to smooth temporary shocks to liquidity. In this framework, firm exit arises from the interaction between this financial friction and fluctuations in cash flow due to aggregate and sectoral changes in demand conditions, as well as more traditional shocks to productivity. To evaluate the implications of our model, we use firm-level data on small and medium-sized enterprises (SMEs) in 11 European countries. We confirm that our framework is consistent with official failure rates in 2017–2019, a period characterized by standard business cycle fluctuations in demand. To capture a large liquidity shock, we apply our framework to the COVID-19 crisis. We find that, in the absence of government support, SME failure rates would have increased by 6.01 percentage points, putting 3.1 percent of employment at risk. Our results are consistent with the premise that financial frictions lead to inefficient exit as, without government support, the firms failing due to COVID-19 have similar productivity and past growth to firms that survive the COVID-19 crisis., Nous étudions les conséquences des frictions financières sur les fermetures d’entreprises confrontées à d’importants chocs de liquidité. Nous construisons un modèle simple de minimisation des coûts des entreprises, dans lequel une friction financière restreint la capacité d’emprunt servant à lisser les chocs temporaires de liquidité. Dans notre modèle, cette friction – couplée aux fluctuations des flux de trésorerie provoquées par les variations agrégées et sectorielles des conditions de la demande, ainsi qu’à des chocs plus traditionnels de productivité – conduit à des dépôts de bilan. Pour évaluer les implications des résultats de notre modèle, nous exploitons des données issues de PME situées dans onze pays d’Europe. Les résultats du modèle concordent avec les statistiques officielles sur les taux de faillite des PME en 2017-2019, période où la demande a connu des variations caractéristiques d’un cycle économique normal. Afin de simuler les incidences d’un important choc de liquidité, nous appliquons au modèle la crise causée par la pandémie de COVID-19. Il en ressort que, sans les aides publiques, le taux de faillite des PME aurait augmenté de 6,01 points de pourcentage, et 3,1 % des emplois auraient été menacés. Les résultats obtenus cadrent avec notre prémisse selon laquelle les frictions financières entraînent des fermetures inefficientes, étant donné que les entreprises qui ferment en raison de la COVID-19 en absence de soutien public ont une productivité et une croissance passée semblables à celles des entreprises qui ont surmonté la crise déclenchée par la pandémie.

We study the impact of foreign direct investment (FDI) on total factor productivity (TFP) of domestic firms using a new, representativ firm-level data set spanning six countries. A novel finding is that firm-level spillovers from foreign firms to domestic companies can be significantly positive, non-existent, or even negative, depending on which sectors receive FDI. When foreign firms produce in the same narrow sector as domestic firms, the latter are negatively affected by increasing competition and positively aected by knowledge spillovers. We find that the positive spillovers dominate if foreign firms enter sectors where firms are "technologically close," controlling for the endogeneity of their entry decision into such sectors. Positive technology spillovers also affect firms in other sectors, if those sectors are technologically close to the sectors receiving FDI. Increasing FDI in sectors that are technologically close to other sectors boosts TFP of domestic firms by twice as much as increasing FDI by the same amount across all sectors.

Although recent research shows that the euro has spurred cross-border financial integration, the exact mechanisms remain unknown. We investigate the underlying channels of the euro’s effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years. We also construct a dataset that records the timing of legislative-regulatory harmonization policies in financial services across the European Union. We find that the euro’s impact on financial integration is primarily driven by eliminating the currency risk. Legislative-regulatory convergence has also contributed to the spur of cross-border financial transactions. Trade in goods, while highly correlated with bilateral financial activities, does not play a key role in explaining the euro’s positive effect on financial integration.

We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalised banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post 2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth.

Bu çalışma, 1992?2003 periyodu için Türkiye imalat sanayindeki toplam istihdamın yaklaşık %75'ini içeren kapsamlı firma-düzeyi veri setini kullanarak,bu firmaların mali kısıtlı olup olmadığını incelemektedir. Literatürde Fazari,Hubbard ve Peterson (1988) öncü çalışmasını temel alarak, firmaların yatırımkararlarını belirlemelerindeki mali kısıtların rolünü inceleyen çok sayıda araştırmamevcuttur. Bu çalışmaların birçoğu, mali kısıtları tanımlamak için yatırım-nakitakışı duyarlılığını kontrol etmişlerdir. Sermaye piyasalarındaki bozukluklardanda kaynaklanabilen mali kısıtların kanıtı olarak, firmaların yatırımlarıile içsel finansman ölçütü arasındaki anlamlı pozitif ilişkiyi kullanan Fazari,Hubbard ve Peterson (1988)'in yaklaşımı araştırmada temel alınmıştır. Buçalışmadaki sonuçlara göre, firmaların yatırımları ile nakit akışları arasındaistatistiksel olarak anlamlı pozitif bir ilişki mevcuttur. Bu bulgu, firmalarınboyut ve yaş gibi spesifik özellikleri kontrol edildiğinde dahi geçerlidir. Sonuçolarak bu çalışma, mali kısıtlar literatürüne gelişmekte olan ülkeler bağlamındakatkıda bulunmuştur. Using a comprehensive firm-level data that covers nearly 75% of total employmentin Turkish manufacturing industry for the period 1992-2003, this studytests whether Turkish firms are financially constrained or not. Based on the pioneeringwork of Fazari, Hubbard and Peterson (1988), numerous studies haveexamined the role of financing constraints in determining investment decisionsof firms. Most of these studies check for investment-cash flow sensitivity in orderto identify financing constraints. This study follows the approach of Fazari,Hubbard and Peterson (1988) that interprets a significant positive relationshipbetween firms' investment and the measure of their internal finance (cash flow)as evidence of financing constraints, which might arise due to capital marketimperfections. The results presented here suggest a significant positive relationshipbetween firms' investment and their cash flow. This finding is robustto controlling firm specific characteristics such as size and age. As a result, thestudy contributes to the financing constraints literature by studying the issuein a developing country context. 62