Why Do Firms Borrow Directly from Nonbanks?

Fisher College of Business Working Paper No. 2018-03-013

Charles A. Dice Center Working Paper No. 2018-13

53 Pages Posted: 26 Jul 2018 Last revised: 17 Aug 2020

See all articles by Sergey Chernenko

Sergey Chernenko

Purdue University - Department of Management

Isil Erel

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert Prilmeier

Tulane University - A.B. Freeman School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 13, 2020

Abstract

Analyzing hand-collected credit agreements data for a random sample of middle-market firms during 2010-2015, we find that a third of all loans is extended directly by nonbank financial intermediaries. Nonbanks lend to less profitable and more levered firms that undergo larger changes in size around loan origination. The probability of borrowing from a nonbank jumps by 34% as EBITDA falls below zero, an effect that is largely due to bank regulation. Controlling for firm and loan characteristics, nonbank loans carry 190 basis points higher interest rates, suggesting that access to funding, rather than prices, is why firms borrow from nonbanks.

Keywords: shadow banking, relationship lending, market segmentation

JEL Classification: G21, G23, G30, G32

Suggested Citation

Chernenko, Sergey and Erel, Isil and Prilmeier, Robert, Why Do Firms Borrow Directly from Nonbanks? (August 13, 2020). Fisher College of Business Working Paper No. 2018-03-013, Charles A. Dice Center Working Paper No. 2018-13, Available at SSRN: https://ssrn.com/abstract=3220527 or http://dx.doi.org/10.2139/ssrn.3220527

Sergey Chernenko

Purdue University - Department of Management ( email )

West Lafayette, IN 47907-1310
United States
(765) 494-4413 (Phone)

HOME PAGE: http://https://sites.google.com/site/chernenkosergey/

Isil Erel (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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European Corporate Governance Institute (ECGI) ( email )

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Belgium

Robert Prilmeier

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

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