Article ID Journal Published Year Pages File Type
967455 Journal of Monetary Economics 2014 18 Pages PDF
Abstract
We quantify fluctuations in bank-loan supply in the time-series by studying firms' substitution between loans and bonds using firm-level data. Any firm that raises new debt must have a positive demand for external funds. Conditional on the issuance of new debt, we interpret firms' switching from loans to bonds as a contraction in bank-credit supply. We find strong evidence of this substitution at times that are characterized by tight lending standards, depressed aggregate lending, poor bank performance, and tight monetary policy. We show that this substitution behavior has strong predictive power for bank borrowing and investments by small firms.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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