Bank credit tightening, debt market frictions, and corporate yield spreads

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Article number100603
Journal / PublicationJournal of Financial Markets
Online published15 Sept 2020
Publication statusPublished - Sept 2021


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.

Research Area(s)

  • Bank credit tightening, Debt inflexibility, Lending standards, Yield spreads