Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
This paper employs euro area firm‐level data covering the years 2002–18 to examine the impact of cross‐border debt flows on the domestic allocation of credit across firms conditional on their profitability. As only debt flows driven by global push factors are exogenous with respect to domestic credit allocation, I overcome the endogeneity of debt flows by instrumenting them with a measure of global uncertainty (VIX). My results show that debt flows raise the credit growth rates of low performing firms significantly more than those of high performing firms. This result is driven by domestic banking sectors with lower capitalization.