Bank credit tightening, debt market frictions, and corporate yield spreads
Massimo Massa and
Journal of Financial Markets, 2021, vol. 55, issue C
We study how credit supply frictions in the regional availability of debt financing in the U.S. affect corporate yield spreads. We define a measure of debt inflexibility that captures the firm’s inability to buffer a tightening in bank credit by replacing bank loans with corporate bonds. We document that more inflexible firms suffer a higher increase in yield spreads as bank credit tightens. This happens for both market-wide tightening in lending standards and firm-specific tightening upon loan covenant violations. Moreover, inflexible firms display a closer connection between changes in yield spreads and stock returns.
Keywords: Bank credit tightening; Debt inflexibility; Lending standards; Yield spreads (search for similar items in EconPapers)
JEL-codes: G12 G21 G23 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:55:y:2021:i:c:s1386418120300720
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