Corporate financing and macroeconomic volatility in the European union

This paper investigates the impact of corporate financing patterns in the European Union (EU) on macroeconomic volatility. We examine macroeconomic data for eight EU countries. We find that during the period 1990 through 2005 bank financing was positively associated with volatility in GDP, consumption and investment. On the other hand, macroeconomic volatility declined with increased dependence on market-based financing from the equity and bond markets during this period.