Place : Grand Paris Campus, Brainroom 

Time : 10:00-11:00AM 

Speaker : Supriya Kapoor (Trinity College Dublin)

Abstract : Since July 2022, European Central Bank (ECB) increased its interest rates for the first time in eleven years to bring inflation back to target. This has huge implication on the credit decision for firms, especially the small and medium enterprises (SME), instrumental in supporting employment, innovation and income. Using ECB’s ‘Survey on Access to Finance of Enterprises’ (SAFE) from 2015 to 2023, this paper assesses if the ECB’s monetary policy tightening bears any relationship with SME’s substituting away from bank credit towards alternative sources of finance. Our results show that contractionary monetary policy shocks were positively associated with the likelihood of SME’s substituting away from bank credit. We find this behaviour across SMEs with larger turnover, employee size, age, as well as credit-quality; indicating a much stronger reliance and stickiness to bank credit for relatively smaller, younger, and riskier firms despite increases in the cost of credit following contractionary monetary policy shocks.