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Corporate Debt Structure and the Financial Crisis

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  • De Fiore, Fiorella
  • Uhlig, Harald

Abstract

We present a DSGE model where firms optimally choose among alternative instruments of external finance. The model is used to explain the evolving composition of corporate debt during the financial crisis of 2008-09, namely the observed shift from bank finance to bond finance, at a time when the cost of market debt rose above the cost of bank loans. We show that the flexibility offered by banks on the terms of their loans and firms JEL Classification: E32, E44, C68, G23

Suggested Citation

  • De Fiore, Fiorella & Uhlig, Harald, 2015. "Corporate Debt Structure and the Financial Crisis," Working Paper Series 1759, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20151759
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    References listed on IDEAS

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    1. Denis, David J. & Mihov, Vassil T., 2003. "The choice among bank debt, non-bank private debt, and public debt: evidence from new corporate borrowings," Journal of Financial Economics, Elsevier, vol. 70(1), pages 3-28, October.
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    12. Fiorella De Fiore & Harald Uhlig, 2011. "Bank Finance versus Bond Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(7), pages 1399-1421, October.
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    14. Tobias Adrian & Paolo Colla & Hyun Song Shin, 2012. "Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007-9," NBER Working Papers 18335, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Chris Garbers & Guangling Liu, 2016. "Credit market heterogeneity, balance sheet (in) dependence, financial shocks," Working Papers 633, Economic Research Southern Africa.
    2. Stepanchuk Serhiy & Ádám Reiff, 2012. "11th Annual Macroeconomic Policy Research Workshop at MNB: Microeconomic Behavior and its Macroeconomic Implications During the Financial Crisis," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 7(3), pages 67-72, October.
    3. Grimme, Christian, 2017. "Uncertainty and the Cost of Bank vs. Bond Finance," MPRA Paper 79852, University Library of Munich, Germany.
    4. Kühl, Michael, 2016. "The effects of government bond purchases on leverage constraints of banks and non-financial firms," Discussion Papers 38/2016, Deutsche Bundesbank.
    5. Gu, Xian & Kowalewski, Oskar, 2016. "Creditor rights and the corporate bond market," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 215-238.
    6. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.
    7. González, Víctor M., 2015. "The financial crisis and corporate debt maturity: The role of banking structure," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 310-328.
    8. Altavilla, Carlo & Darracq Pariès, Matthieu & Nicoletti, Giulio, 2015. "Loan supply, credit markets and the euro area financial crisis," Working Paper Series 1861, European Central Bank.
    9. Gersbach, Hans & Rochet, Jean-Charles & Scheffel, Martin, 2018. "Financial Intermediation, Capital Accumulation and Crisis Recovery," TSE Working Papers 18-885, Toulouse School of Economics (TSE).
    10. Fiorella De Fiore & Harald Uhlig, 2015. "Corporate Debt Structure and the Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(8), pages 1571-1598, December.
    11. Ivailo Yankov, 2016. "Endogenous Elements of the Firm Indebtedness in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 126-140.
    12. Tobias Adrian & Paolo Colla & Hyun Song Shin, 2013. "Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007 to 2009," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 159-214.
    13. Grjebine, Thomas & Szczerbowicz, Urszula & Tripier, Fabien, 2018. "Corporate debt structure and economic recoveries," European Economic Review, Elsevier, vol. 101(C), pages 77-100.
    14. Brunella Bruno & Alexandra D’Onofrio & Immacolata Marino, 2017. "Financial Frictions and Corporate Investment in Bad Times. Who Cut Back Most?," CSEF Working Papers 463, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 02 May 2017.
    15. Xiao, J., 2016. "Corporate Debt Structure, Precautionary Savings, and Investment Dynamics," Cambridge Working Papers in Economics 1666, Faculty of Economics, University of Cambridge.
    16. repec:eee:moneco:v:87:y:2017:i:c:p:13-33 is not listed on IDEAS
    17. Safronov, M., 2016. "Experimentation and Learning-by-Doing," Cambridge Working Papers in Economics 1667, Faculty of Economics, University of Cambridge.
    18. Torsten Ehlers & Steven Kong & Feng Zhu, 2018. "Mapping shadow banking in China: structure and dynamics," BIS Working Papers 701, Bank for International Settlements.
    19. Gersbach, Hans & Rochet, Jean-Charles & Scheffel, Martin, 2015. "Financial Intermediation, Capital Accumulation, and Recovery," CEPR Discussion Papers 10964, C.E.P.R. Discussion Papers.
    20. Gu, Xian & Kowalewski, Oskar, 2015. "Creditor rights and corporate bond market," MPRA Paper 67022, University Library of Munich, Germany.
    21. Gersbach, Hans & Rochet, Jean-Charles & Scheffel, Martin, 2018. "Financial Intermediation, Capital Accumulation and Crisis Recovery," IDEI Working Papers 881, Institut d'Économie Industrielle (IDEI), Toulouse.
    22. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.
    23. Kosuke Aoki & Kalin Nikolov, 2015. "Financial Disintermediation and Financial Fragility," CARF F-Series CARF-F-374, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    24. Tobias Adrian & Paolo Colla & Hyun Song Shin, 2012. "Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007-9," NBER Working Papers 18335, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    corporate debt; financial crisis; firms heterogeneity; risk shocks;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • 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
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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