A Credit Crunch Behind the Great Trade Collapse? Micro Evidence From Europe

Using a very detailed sample of small and medium European firms, we study how differences in main banks’ lending technology affected the foreign activities in the aftermath of the financial crisis. We find that the probability of a reduction in foreign activities was lower for firms matching with relational banks. The positive impact of relationship lending is especially strong for younger and smaller firms and for firms in industries more reliant on external finance. In addition, we uncover that relationship lending is beneficial for firms that are in the early stage of internationalization.