Financial Crisis and the Supply of Corporate Credit
64 Pages Posted: 11 Apr 2014 Last revised: 13 May 2015
Date Written: April 30, 2015
Analyzing syndicated loan and public debt originations by publicly traded U.S. firms between 2004 and 2011, we document a sharp migration from bank borrowing to either no borrowing or public debt issuance in the crisis years. We find evidence for a bank-lending channel; the migration from bank borrowing was more prominent and subsequent investment was lower for firms that had relationships with the more severely distressed lead banks during the crisis. The ability of many publicly traded firms to promptly disintermediate and issue their own debt provided critical but imperfect debt substitutability. Sticky interest rates and a surge in loan commitment drawdowns suggest that bank credit rationing was prevalent during the crisis as banks hoarded liquidity to reduce their risk of insolvency. Many firms originated public debt at interest rates far higher than syndicated loan rates.
Keywords: financial crisis, bank-lending channel, credit rationing, financial flexibility
JEL Classification: G12, G21, G32
Suggested Citation: Suggested Citation