Non-bank Loans, Corporate Investment and Firm Performance
62 Pages Posted: 12 Feb 2019 Last revised: 26 Apr 2021
Date Written: September 1, 2020
In the leveraged loan sector, firms borrowing from non-banks have worse profitability and lower investments following loan origination, compared to observably similar firms borrowing from banks; the negative effects are concentrated in the subset of financially-constrained firms. Our results are consistent with the view that non-banks extract rents from borrowers as the lenders of last resort. The leveraged lending guidance, which resulted in the migration of borrowers from banks to non-banks, led to worse outcomes for the leveraged borrowers, complementing our cross-sectional analysis. Our findings suggest that macroprudential policies which exclusively target the traditional banking sector can have negative consequences.
Keywords: Non-bank lending, Shadow banking sector, Financial constraints, Leveraged lending guidance.
JEL Classification: G21, G23, G30
Suggested Citation: Suggested Citation