Financial crisis and firm behaviour: Evidence from the Swedish banking crisis in the early 90s

The Swedish banking crisis in the early 1990s, among the five most severe financial crises historically, provides an insightful yet previously unexplored episode to improve our understanding of modern financial crises. It involved a sudden and temporary tightening of lending standards as well as a sharp increase in the cost of external finance. We study this event to shed some light on the effect of financial crises on employment and its underlying mechanisms. Our analysis draws on rich employer-employee data containing the financial statements for a large sample of firms from 1985 and onwards, which allow us to measure financial constraints.