Why Do Firms Borrow Directly from Nonbanks?

Sergey Chernenko, Isil Erel and Robert Prilmeier

The Review of Financial Studies, 2022, vol. 35, issue 11, 4902-4947

Abstract: Analyzing hand-collected credit agreements for a sample of middle-market firms over 2010–2015, we find that one-third of all loans are directly extended by nonbank financial intermediaries. Two-thirds of such nonbank lending can be attributed to bank regulations that constrain banks’ ability to lend to unprofitable and highly levered borrowers. Firms with negative EBITDA and debt/EBITDA greater than six are 32 and 15 more likely to borrow from nonbanks. These firms pay significantly higher interest rates, especially following the 2013 leveraged loan guidance revisions. Nonbank borrowers also receive different nonprice terms compared to firms borrowing from banks.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: G21 G23 G30 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (18)

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