Tracing the impact of bank liquidity shocks: Evidence from an emerging market

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Abstract

We examine the impact of liquidity shocks by exploiting cross-bank liquidity variation induced by unanticipated nuclear tests in Pakistan. We show that for the same firm borrowing from two different banks, its loan from the bank experiencing a 1 percent larger decline in liquidity drops by an additional 0.6 percent. While banks pass their liquidity shocks on to firms, large firms—particularly those with strong business or political ties—completely compensate this loss by additional borrowing through the credit market. Small firms are unable to do so and face large drops in overall borrowing and increased financial distress. (JEL E44, G21, G32, L25)

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Document Metadata

Issuer: American Economic Association
Document Type: Research / Academic Paper
Publication Year: 2008
Retrieved: 5 May 2026
Source: Contact XFID for Access
Record ID: XF5XVPQUOF
Validation: Inferred by XFID

Topics

Bank LendingEmerging Markets

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American Economic Association (2008). Tracing the impact of bank liquidity shocks: Evidence from an emerging market. XFID: XF-5XVPQUO-F. Retrieved from https://xframework.id/XF5XVPQUOF

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