Bank Loan Supply, Lender Choice, and Corporate Capital Structure
63 Pages Posted: 27 Sep 2008
Date Written: June 20, 2008
This paper explores the relevance of capital market supply frictions for corporate capital structure decisions. To identify this relationship, I study the effect on firms' financial structures of two changes in bank funding constraints: the 1961 emergence of the market for CDs, and the 1966 credit crunch. Following an expansion (contraction) in the availability of bank loans, leverage ratios of bank-dependent firms significantly increase (decrease) relative to firms with bond market access. Concurrent changes in the composition of financing sources lend further support to the role of credit supply and debt market segmentation in capital structure choice.
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