How Does Long-Term Finance Affect Economic Volatility?

A. Demirgüç-Kunt, Bálint Horváth, Harry Huizinga

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Abstract

In an approach analogous to Rajan and Zingales (1998), we examine how the ability to access long-term debt affects firm-level growth volatility. We find that firms in industries with stronger preference to use long-term finance relative to short-term finance experience lower growth volatility in countries with better-developed financial systems, as these firms may benefit from reduced refinancing risk. Institutions that facilitate the availability of credit information and contract enforcement mitigate refinancing risk and therefore growth volatility associated with short-term financing. Increased availability of long-term finance reduces growth volatility in crisis as well as non-crisis periods.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages62
Volume2016-005
Publication statusPublished - 21 Jan 2016

Publication series

NameCentER Discussion Paper
Volume2016-005

Keywords

  • debt maturity
  • finanical dependence
  • firm volatiliy
  • financial development

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    Demirgüç-Kunt, A., Horváth, B., & Huizinga, H. (2016). How Does Long-Term Finance Affect Economic Volatility? (CentER Discussion Paper; Vol. 2016-005). Economics.