Credit tightening and financial debt sustainability: a panel approach to Italian firm-level data

Sammanfattning: The aim of this paper is to examine how the macroeconomic shock caused by the sovereign debt crisis of 2012, through its impact on credit markets, was transmitted to the debt sustainability of Italian manufacturing firms. Using original panel data on 12,103 firms and adopting a fixed effects strategy I test the existence and the impact of the bank lending and balance sheet transmission channels on corporate debt sustainability. I find proof of the presence of a bank lending channel effect. Moreover, I am able to identify firm level characteristics and qualitative variables which appear to play a role in determining firms' debt sustainability, thus also finding evidence on the balance sheet channel. The present work can provide some basis for the design of policies targeting credit market issues, which can arise following a similar macroeconomic shock.