Corporate debt structure and economic recoveries: a cross-country analysis

The recovery after the 2008 crisis was faster in the United States than in the euro area. Some authors argued that the US financial system’s capacity to replace bank financing with corporate bond financing contributed to the faster recovery. This Rue de la Banque summarises an empirical investigation of the business-cycle behaviour of corporate debt structure in 23 countries over the period 1989-2013. The results highlight two interesting facts. First, the substitution of loans for bonds in recoveries is a regular property of business cycles. Second, economies with a high share of bond financing and significant bond-loan substitution recover faster from recessions. These findings support the Capital Markets Union project which includes the diversification of funding sources for European firms.