Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis

50 Pages Posted: 17 May 2009 Last revised: 15 Sep 2011

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Bruno A. Laranjeira

University of Illinois at Urbana-Champaign

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 3, 2011

Abstract

We use the 2007 credit crisis to assess the effect of financial contracting on real corporate behavior. We identify heterogeneity in financial contracting at the onset of the crisis by exploring ex-ante variation in long-term debt maturity. Our empirical methodology uses an experiment-like design in which we control for observed and unobserved firm heterogeneity via a differences-in-differences matching estimator. We study whether firms with large portions of their long-term debt maturing right at the time of the crisis observe more pronounced outcomes than otherwise similar firms that need not refinance their debt during the crisis. Firms whose long-term debt was largely maturing right after the third quarter of 2007 reduced investment by 2.5% more (on a quarterly basis) than otherwise similar firms whose debt was scheduled to mature well after 2008. This relative decline in investment is statistically significant and economically large, representing approximately one-third of pre-crisis investment levels. A number of falsification and placebo tests confirm our inferences about the effect of credit supply shocks on corporate policies. For example, in the absence of a credit shock ("normal times"), the maturity composition of long-term debt has no effect on investment outcomes. Likewise, that maturity composition has no impact on investment when long-term debt is not a major source of funding for the firm.

Keywords: Financial crisis, debt maturity, matching estimators, investment spending, financing constraints

JEL Classification: G31

Suggested Citation

Almeida, Heitor and Campello, Murillo and Laranjeira, Bruno A. and Weisbenner, Scott J., Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis (August 3, 2011). Available at SSRN: https://ssrn.com/abstract=1405505 or http://dx.doi.org/10.2139/ssrn.1405505

Heitor Almeida

University of Illinois at Urbana-Champaign ( email )

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Murillo Campello (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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Bruno A. Laranjeira

University of Illinois at Urbana-Champaign ( email )

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Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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HOME PAGE: http://business.illinois.edu/weisbenn/

National Bureau of Economic Research (NBER) ( email )

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