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Corporate Debt, Boom-Bust Cycles, and Financial Crises

Author

Listed:
  • Victoria Ivashina
  • Ṣebnem Kalemli-Özcan
  • Luc Laeven
  • Karsten Müller

Abstract

Using a new dataset on sectoral credit exposures covering financial and non-financial sectors in 115 economies over the period 1940–2014, we document the following evidence that corporate debt plays a key role in explaining boom-bust cycles, financial crises, and slow macroeconomic recoveries: (i) corporate debt accounts for two thirds of the aggregate credit expansion before crises and three quarters of total nonperforming loans during the bust; (ii) expansions in corporate debt predict crises similarly to household debt; (iii) a measure of imbalance in credit growth flowing disproportionately to some sectors, such as construction and non-bank financial intermediation, is associated with crises; and (iv) the recovery from financial crises is slower after a boom in corporate debt, especially when backed by procyclical collateral values, due to higher nonperforming loans.

Suggested Citation

  • Victoria Ivashina & Ṣebnem Kalemli-Özcan & Luc Laeven & Karsten Müller, 2024. "Corporate Debt, Boom-Bust Cycles, and Financial Crises," NBER Working Papers 32225, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32225
    Note: CF EFG IFM
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    Cited by:

    1. Brianti, Marco & Cormun, Vito, 2024. "Expectation-driven boom-bust cycles," Journal of Monetary Economics, Elsevier, vol. 146(C).

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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