Corporate Credit Provision

63 Pages Posted: 15 Aug 2019 Last revised: 27 Sep 2023

See all articles by Nina Boyarchenko

Nina Boyarchenko

Federal Reserve Bank of New York

Leonardo Elias

Federal Reserve Bank of New York

Philippe Mueller

Warwick Business School Finance Group

Date Written: August 1, 2019

Abstract

Productive firms can access credit markets directly—by issuing corporate bonds—or in an intermediated manner—by borrowing through loans. In this paper, we study how the macroeconomic environment, including inflation, the stage of business cycle, and the stance of monetary policy, affects firms’ decisions of which debt market to access. Tighter monetary policy leads to firms borrowing more using intermediated credit, while higher inflation rates lead firms to lock in financing rates by issuing corporate bonds. Moreover, we also explore the role that heterogeneity in leverage across different types of financial institutions plays in the composition of nonfinancial firms’ financing. We show that increases in leverage in the traditional banking sector lead to a substitution from loans into bonds.

Keywords: intermediated credit, leverage cycles, corporate bonds

JEL Classification: G21, G22, G23, G32

Suggested Citation

Boyarchenko, Nina and Elias, Leonardo and Mueller, Philippe, Corporate Credit Provision (August 1, 2019). FRB of New York Staff Report No. 895, Rev. September 2023, WBS Finance Group Research Paper, 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)

Leonardo Elias

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Philippe Mueller

Warwick Business School Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

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