Why Do Firms Borrow Directly from Nonbanks?

53 Pages Posted: 18 Nov 2019 Last revised: 18 Apr 2021

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

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Date Written: November 2019

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.

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Suggested Citation

Chernenko, Sergey and Erel, Isil and Prilmeier, Robert, Why Do Firms Borrow Directly from Nonbanks? (November 2019). NBER Working Paper No. w26458, Available at SSRN: https://ssrn.com/abstract=3488958

Sergey Chernenko (Contact Author)

Purdue University - Department of Management ( email )

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Isil Erel

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

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Robert Prilmeier

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

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