Friday, September 3, 2010

Non-Financial Firms Were Affected More By Uncertainty Than Credit Contraction During The Recent Financial Crisis

Non-financial firms were affected more by uncertainty and lack of growth opportunities during the financial crisis than by credit contraction, according to a study by Kathleen M. Kahle and Renee Stulz.
From "Financial Policies and the Financial Crisis: How Important Was the Systemic Credit Contraction for Industrial Corporations?" by Kathleen M. Kahle, University of Arizona - Department of Finance and Rene M. Stulz, Ohio State University (OSU) - Department of Finance:
Although firm financial policies were affected by a credit contraction during the recent financial crisis, the impact of increased uncertainty and decreased growth opportunities was stronger than that of the credit contraction per se. From the start of the financial crisis (third quarter of 2007) to its peak (first quarter of 2009), both large and investment-grade non-financial firms show no evidence of suffering from an exceptional systemic credit contraction.
Ungated version of their paper is available here.

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