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