Corporate Debt Structure and the Financial Crisis

De Fiore, Fiorella; Uhlig, Harald

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Corporate Debt Structure and the Financial Crisis

NBER Working Paper No. w20730

35 Pages Posted: 8 Dec 2014 Last revised: 24 Aug 2023

See all articles by Fiorella De Fiore

Fiorella De Fiore

Bank for International Settlements (BIS) - Monetary and Economic Department

Harald Uhlig

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written: December 2014

Abstract

We present a DSGE model where firms optimally choose among alternative instruments of external finance. The model is used to explain the evolving composition of corporate debt during the financial crisis of 2008-09, namely the observed shift from bank finance to bond finance, at a time when the cost of market debt rose above the cost of bank loans. We show that the flexibility offered by banks on the terms of their loans and firm's ability to substitute among alternative instruments of debt finance are important to shield the economy from adverse real effects of a financial crisis.

Suggested Citation: Suggested Citation

De Fiore, Fiorella and Uhlig, Harald, Corporate Debt Structure and the Financial Crisis (December 2014). NBER Working Paper No. w20730, Available at SSRN: https://ssrn.com/abstract=2535182