Financial constraints, macro-financing environment and post-crisis recovery of firms

This paper is the first to define the recovery of firms' performance after the 2007-2008 global financial crisis. Based on this definition, we present stylized facts on firm recovery using data on firms from 106 countries in the aftermath of the crisis, and we focus in particular on the relationship between firms' recovery and their financial constraints. Using a probit model, we find that firms with stronger financial constraints tend to experience a more sluggish recovery from the financial crisis than those with weaker constraints. Furthermore, a well-developed bank financing market and a bank-oriented financial structure contribute to firms' recovery by easing their financial constraints, but the effect of capital market financing is ambiguous. Although expansionary fiscal and monetary policies are helpful for a speedy recovery, only expansionary monetary policies effectively stimulate firms' recovery by easing their financial constraints.