In a bank-oriented country such as Italy, bank credit is by far the most important source of external finance for firms. The allocative efficiency of banks is therefore an important element underlying the overall performance of the economy. In this paper we focus on allocation across industrial sectors. To investigate the matter, we use the concept of growth opportunities for each industrial sector, as revealed by stock market data. The paper exploits a new database which includes annual data on bank credit to different sectors (both aggregate and at the individual bank level) and parallel data on prices, earnings and capitalization of listed firms from 1948 to 2009. We assume that average sectoral price/earning ratios are a proxy for the growth opportunities of each sector, and that an efficient allocation of credit takes into account the variation of such opportunities. Cointegration between the volume of credit and the P/E ratios is tested for relevant sub-periods, keeping the banking history of the country in the background. Our results confirm the hypothesis 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 seem to depend, therefore, on the ability of the banks to select the industrial sectors to which lend money. Other subperiods are still under investigation (the relevant data will be available shortly).
Published in 2013 in: G. Toniolo (ed.), The Oxford Handbook of the Italian Economy since Unification, Oxford University Press, New York 2013
