Institutional Investors in Corporate Loans
45 Pages Posted: 4 Nov 2013 Last revised: 14 Jul 2018
Date Written: August 30, 2017
I examine the implications of the sharp contraction of loan supply from nonbank institutional investors from 2008 through 2010 by comparing firms with and without institutional loans at the onset of the financial crisis. Despite large subsequent reductions in institutional loan balances, there is no evidence that firms with exposure to the supply shock subsequently experienced worse firm performance or lower investment. Instead, there is strong evidence that firms fully offset the fall in institutional loans by issuing additional bank debt and, primarily, corporate bonds. The results show that large borrowers can easily substitute between different types of capital and that institutional loans do not facilitate excessive corporate borrowing.
Keywords: corporate finance, capital structure, debt structure, institutional investors, bank loans, collateralized loan obligations
JEL Classification: G30, G32, G21
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