Abstract and Keywords
In Italy's bank-oriented financial system, bank credit is the most important source of external finance for firms. The allocative efficiency of banks is therefore a critical element underlying the overall performance of the economy. This chapter focuses on credit allocation across industrial sectors with different growth opportunities, as revealed by stock market data. We constructed a unique database which includes annual data on bank credit to different sectors and data on listed firms from 1948 to 2009. We assume that average sectoral price/earnings ratios are a proxy for growth opportunities, and that an efficient allocation of credit takes into account the variation of such opportunities. Our results confirm the hypothesis that, after a good start in the Fifties and Sixties, the following two decades, characterized by an excess of regulation (mixed with robust doses of political interference), saw a decline in the performance of the banking system. We also find evidence that after the financial liberalization of the early Nineties the allocative efficiency (across sectors) of the banking system increased. The present structural difficulties of the Italian economy do not depend, therefore, on the ability of the banks to select the industrial sectors to which to lend money.
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