Credit Shocks and Firms’ Expectations: Evidence from an RCT

We study how credit conditions shape firms’ inflation expectations and how treatment-induced changes in those expectations affect firms’ financial decisions in a high-inflation environment. Using matched survey and administrative data from Türkiye, we first construct firm-level idiosyncratic bank credit supply shocks and show that positive shocks raise firms’ inflation expectations and improve their demand and investment outlook. We then run a randomized information experiment that provides firms with information about aggregate credit growth, including credit easing and tightening, and show that this aggregate credit information causally shifts firms’ inflation expectations. Using the resulting variation as an instrument, we find that higher inflation expectations increase borrowing, credit utilization, and debt maturity, while also raising borrowing costs, consistent with stronger credit demand. Firms also rebalance their balance sheets by shifting from FX debt toward TL debt and by increasing FX purchases while reducing FX sales. The results show that inflation expectations are an important determinant of firms’ borrowing, maturity choice, and currency management, highlighting an expectations channel through which credit conditions affect firm behavior.