Bond vs. bank finance and the Great Recession

Manuel Martins and Fabio Verona

Finance Research Letters, 2021, vol. 39, issue C

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.

Keywords: Corporate finance; Bond finance; Bank finance; Great Recession; Business cycle (search for similar items in EconPapers)
JEL-codes: E32 E44 G00 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s154461232030180x

DOI: 10.1016/j.frl.2020.101583

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