Corporate Debt Structure and the Financial Crisis
52 Pages Posted: 18 Feb 2015
There are 2 versions of this paper
Corporate Debt Structure and the Financial Crisis
Corporate Debt Structure and the Financial Crisis
Date Written: January 7, 2015
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 firms’ ability to substitute among alternative instruments of debt finance are important to shield the economy from adverse real effects of a financial crisis.
Keywords: corporate debt, financial crisis, risk shocks, firms heterogeneity
JEL Classification: E32, E44, C68, G23
Suggested Citation: Suggested Citation