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Corporate Credit Provision

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  • Nina Boyarchenko
  • Philippe Mueller

Abstract

Productive firms can access credit markets directly by issuing corporate bonds or by borrowing through financial intermediaries. In this paper, we study the cyclical properties of corporate credit provision through these two types of debt instruments in major advanced economies. We argue that the cyclicality of corporate credit is closely related to the cyclicality of the types of financial intermediaries active in the provision of credit. When a debt instrument is held by institutions that manage their balance sheets through debt issuance, credit provision through that instrument is procyclical. But when a debt instrument is held by institutions that manage their balance sheets through equity issuance, credit provision through that instrument is countercyclical. We show that cross-country differences in the cyclicality of corporate credit can be ascribed to differences in the composition of the aggregate financial sector, and not to differences in the balance sheet management practices of each type of financial intermediary.

Suggested Citation

  • Nina Boyarchenko & Philippe Mueller, 2019. "Corporate Credit Provision," Staff Reports 895, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:895
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    References listed on IDEAS

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    More about this item

    Keywords

    intermediated credit; leverage cycles; corporate bonds;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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