Corporate Credit Provision

53 Pages Posted: 15 Aug 2019

See all articles by Nina Boyarchenko

Nina Boyarchenko

Federal Reserve Bank of New York

Philippe Mueller

Warwick Business School Finance Group

Date Written: August 2019

Abstract

Productive firms can access credit markets directly by issuing corporate bonds or by borrowing through financial intermediaries. In this paper, we study the cyclical properties of corporate credit provision through these two types of debt instruments in major advanced economies. We argue that the cyclicality of corporate credit is closely related to the cyclicality of the types of financial intermediaries active in the provision of credit. When a debt instrument is held by institutions that manage their balance sheets through debt issuance, credit provision through that instrument is procyclical. But when a debt instrument is held by institutions that manage their balance sheets through equity issuance, credit provision through that instrument is countercyclical. We show that cross-country differences in the cyclicality of corporate credit can be ascribed to differences in the composition of the aggregate financial sector, and not to differences in the balance sheet management practices of each type of financial intermediary.

Keywords: intermediated credit, leverage cycles, corporate bonds

JEL Classification: G21, G22, G23, G32

Suggested Citation

Boyarchenko, Nina and Mueller, Philippe, Corporate Credit Provision (August 2019). FRB of New York Staff Report No. 895. Available at SSRN: https://ssrn.com/abstract=3437275 or http://dx.doi.org/10.2139/ssrn.3437275

Nina Boyarchenko (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7339 (Phone)
212-720-1582 (Fax)

Philippe Mueller

Warwick Business School Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

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