Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis

Abstract

We thank Jaehoon Lee for excellent research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

POSTCRISIS M&As AND THE IMPACT OF FINANCIAL CONSTRAINTS

“…Similar to M&A activity, both investment and borrowing declined substantially in 2008, and both declined even more markedly in 2009, with both producing negative levels in that year. These observations are consistent with those of Campello, Graham, and Harvey (2010), Duchin, Ozbas, and Sensoy (2010), and Almeida et al (2011) who all document declines in both business credit and investment as a result of the financial crisis.…”

“…On the credit side, although the base borrowing rate was lower during the postcrisis period (i.e., the median 30‐year Treasury bond rate was 4.02% postcrisis vs. 4.82% precrisis), the typical credit spread was much higher during the postcrisis period (i.e., median BBB spread of 2.47%) than during the precrisis period (1.28%). This indicates credit availability was tighter following the financial crisis, which is consistent with the findings of Campello, Graham, and Harvey (2010), Duchin, Ozbas, and Sensoy (2010), and Almeida et al (2011). This finding is reflected in Figure I, which shows that credit availability as measured by business borrowing was much higher during 2003–2007 (annual average $602 billion) than during 2008–2012 (annual average $170 billion).…”

“…Given the arguments noted earlier, and the superior equity and debt market conditions that existed during the precrisis period, it is not surprising that M&A activity was much higher during this period than during the postcrisis period. This is consistent with previous drivers of M&A activity and with higher traditional investment activity, which is documented as being much higher during periods of low financial constraints, including the precrisis period (e.g., Campello, Graham, and Harvey 2010; Duchin, Ozbas, and Sensoy 2010; Almeida et al 2011).…”

“…Several studies document a sharp decline in the availability of financing and an increase in financing costs as a result of the financial crisis (e.g., Almeida et al 2011; Campello, Graham, and Harvey 2010; Ivashina and Scharfstein 2010). Our sample period is ideal for examining financing constraints in general, in the sense that each period captures distinct and opposing stock market and credit conditions.…”

Financial frictions, trends, and the great recession

“…The aggregate stock of bank credit dramatically shrank during the Great Recession (Becker and Ivashina ()). Empirical studies using micro data support the notion that the dramatic shrinkage in lending activities was largely driven by an exogenous reduction in credit (Almeida, Campello, Laranjeira, and Weisbenner (), Duchin, Ozbas, and Sensoy (), and Campello, Graham, and Harvey ()). Giroud and Mueller () found that highly leveraged firms had to reduce employment, close down establishments, and cut back on investment, most likely because they were financially constrained.…”