Financial Crisis and the Supply of Corporate Credit

64 Pages Posted: 11 Apr 2014 Last revised: 13 May 2015

See all articles by Santiago Barraza

Santiago Barraza

Universidad de San Andrés

Wayne Y. Lee

University of Arkansas - Sam M. Walton College of Business

Timothy J. Yeager

University of Arkansas - Sam M. Walton College of Business

Date Written: April 30, 2015

Abstract

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

Barraza, Santiago and Lee, Wayne Y. and Yeager, Timothy J., Financial Crisis and the Supply of Corporate Credit (April 30, 2015). Available at SSRN: https://ssrn.com/abstract=2422678 or http://dx.doi.org/10.2139/ssrn.2422678

Santiago Barraza (Contact Author)

Universidad de San Andrés ( email )

Vita Dumas 284
Victoria, Buenos Aires 1644
Argentina
+54 11 4725 7070 (Phone)

HOME PAGE: http://santiagobarraza.com

Wayne Y. Lee

University of Arkansas - Sam M. Walton College of Business ( email )

Fayetteville, AR 72701
United States

Timothy J. Yeager

University of Arkansas - Sam M. Walton College of Business ( email )

Fayetteville, AR 72701
United States

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