Bond vs bank finance and the Great Recession
Martins, Manuel M. F.; Verona, Fabio (15.03.2021)
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JulkaisusarjaFinance Research Letters
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-202002181191
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.