Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • March 2014
  • Article
  • Journal of Monetary Economics

Cyclicality of Credit Supply: Firm Level Evidence

By: Bo Becker and Victoria Ivashina
  • Format:Print
ShareBar

Abstract

Theory predicts that there is a close link between bank credit supply and the evolution of the business cycle. Yet fluctuations in bank-loan supply have been hard to quantify in the time series. While loan issuance falls in recessions, it is not clear if this is due to demand or supply. We address this question by studying firms' substitution between bank debt and non-bank debt (public bonds) using firm-level data. Any firm that raises new debt must have a positive demand for external funds. Conditional on issuance of new debt, we interpret firm's switching from loans to bonds as a contraction in bank credit supply. We find strong evidence of substitution from loans to bonds at times characterized by tight lending standards, high levels of non-performing loans and loan allowances, low bank share prices, and tight monetary policy. The bank-to-bond substitution can only be measured for firms with access to bond markets. However, we show that this substitution behavior has strong predictive power for bank borrowing and investments by small, out-of-sample firms. We consider and reject several alternative explanations of our findings.

Keywords

Business Cycles; Borrowing and Debt; Credit; Banks and Banking; Bonds; Financial Markets; Financing and Loans; Banking Industry

Citation

Becker, Bo, and Victoria Ivashina. "Cyclicality of Credit Supply: Firm Level Evidence." Journal of Monetary Economics 62 (March 2014): 76–93.
  • SSRN
  • Find it at Harvard

About The Author

Victoria Ivashina

Finance
→More Publications

More from the Authors

    • 2022
    • Faculty Research

    High-Yield Debt Covenants and Their Real Effects

    By: Falk Bräuning, Victoria Ivashina and Ali Ozdagli
    • March 2022
    • Journal of Monetary Economics

    Loan Types and the Bank Lending Channel

    By: Victoria Ivashina, Luc Laeven and Enrique Moral-Benito
    • November 2021
    • Faculty Research

    PE Secondaries: Blackstone Strategic Partners

    By: Victoria Ivashina, Luis M. Viceira, John D. Dionne and Alys Ferragamo
More from the Authors
  • High-Yield Debt Covenants and Their Real Effects By: Falk Bräuning, Victoria Ivashina and Ali Ozdagli
  • Loan Types and the Bank Lending Channel By: Victoria Ivashina, Luc Laeven and Enrique Moral-Benito
  • PE Secondaries: Blackstone Strategic Partners By: Victoria Ivashina, Luis M. Viceira, John D. Dionne and Alys Ferragamo
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Digital Accessibility
Copyright © President & Fellows of Harvard College