Working Paper: CEPR ID: DP8227
Authors: Arturo Bris; Yrj Koskinen; Mattias Nilsson
Abstract: In this paper we study how the introduction of the euro has affected corporate financing in Europe. We use firm level data from eleven euro-countries as well as from a control group of five other European countries spanning the years 1991-2006. We show that firms from euro-countries that previously had weak currencies have increased both their equity and debt financing compared to the control group. We also show that results are stronger for firms that hail from less financially developed euro-countries, and that large firms from industries that are dependent on external financing have increased their debt financing more. These results support the hypothesis that improved access to capital markets in the euro-area has enabled increased external financing, especially debt financing.
Keywords: euro; external financing; financial dependence; financial development; supply of capital
JEL Codes: F33; F36; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased demand for financing (G21) | increase in external financing (G32) |
| improved supply conditions (Q11) | increase in external financing (G32) |
| larger firms dependence on external financing (G32) | increase in debt financing (G32) |
| introduction of the euro (F36) | increase in external financing (G32) |
| introduction of the euro (F36) | increase in debt financing (G32) |
| introduction of the euro (F36) | increase in equity financing (G32) |
| introduction of the euro (F36) | increase in external financing for weak euro countries (F65) |
| introduction of the euro (F36) | increase in debt financing for weak euro countries (F34) |
| introduction of the euro (F36) | increase in equity financing for weak euro countries (F65) |
| introduction of the euro (F36) | increase in external financing for strong euro countries (F34) |
| introduction of the euro (F36) | increase in equity financing for strong euro countries (F34) |