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Bond vs. bank finance and the Great Recession

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  • Martins, Manuel M.F.
  • Verona, Fabio

Abstract

The typical increase of the corporate bond-to-bank ratio during downturns is known to mitigate business cycle recessions. In the three longest and deepest post-war U.S. recessions this ratio didn’t increase from their outsets. In this paper we focus on the timing of the corporate bank-to-bond substitution in the Great Recession, simulating counterfactual paths for output growth under plausible notional behaviors of the bond-to-bank ratio. We find that the Great Recession would have been milder and the recovery much stronger if the bank-to-bond substitution had started since the outset of the recession and evolved thereafter as in most U.S. recessions.

Suggested Citation

  • Martins, Manuel M.F. & Verona, Fabio, 2021. "Bond vs. bank finance and the Great Recession," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s154461232030180x
    DOI: 10.1016/j.frl.2020.101583
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    References listed on IDEAS

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    Cited by:

    1. Peng, Wei & Xiong, Langyu, 2022. "Managing financing costs and fostering green transition: The role of green financial policy in China," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 820-836.

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    More about this item

    Keywords

    Corporate finance; Bond finance; Bank finance; Great Recession; Business cycle;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G00 - Financial Economics - - General - - - General

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