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Switching to bonds when loans are scarce: Evidence from four U.S. crises

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  • Goel, Manisha
  • Zemel, Michelle

Abstract

To what extent do public firms switch to bonds when bank credit supply falls, and how do their real outcomes compare to those of other firms? Examining four U.S. crises during 1988–2011 shows that only 8.4% of debt-receiving firms broke their reliance on loans and switched to bonds. These were high quality firms that, despite incurring large costs, did not suffer significantly more in output, investment, and employment than predominantly bond-issuing firms. Most firms either received loans, or no debt, and fared significantly worse. Thus, public firms do not widely substitute bonds for loans, remaining vulnerable to bank health fluctuations.

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  • Goel, Manisha & Zemel, Michelle, 2018. "Switching to bonds when loans are scarce: Evidence from four U.S. crises," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 1-27.
    • Handle: RePEc:eee:corfin:v:52:y:2018:i:c:p:1-27
    DOI: 10.1016/j.jcorpfin.2018.05.006
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    More about this item

    Keywords

    Financial crises; Corporate finance; Banks; Bonds; Employment; Output; Investment;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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