Financial frictions and their importance for household and corporate finance

Purpose and goal

This study will investigate the impact of financial frictions on access to credit. In a first part we investigate how swedish firms´ investment was affected by the global financial crisis. We document that being part of a business group had a mitigating effect on the impact of the crisis. In a second part we examine the effect of the imposed maximum loan-to-value (LTV) ratio on mortgages for Swedish households. Both projects contibutes to how financial frictions affects Swedish households and firms.

Results and expected effects

The results for firm investment confirms existing theoretical predictions for the first time for a Swedish sample. In comparison to earlier studies the sample includes small and medium sized firms that are not publicly listed. For the loan-to-value study a unique dataset is used which gives a very good view of the economic situation for Swedish households with a mortgage. Preliminary results indicate that the loan-to-value cap had a dampening effect on Swedish households´ indebtedness. Finally the PhD student has obtained a scholarship to go to the U.S. next academic year.

Approach and implementation

The student has finished all compulsory coursework during the first two years. During the last two years he has worked with his research projects. He has been supervised both at Handelshögskolan and at Sveriges riksbank. The project that studies the impact of the financial crisis builds on previous literature and confirms existing theories for a new unique dataset. The loan-to-value study is unique since it builds on a unique dataset and has started with a descriptive analysis of relevant variables before and after the the introduction of the loan-to-value cap.