Professor of Finance
Bank Credit Tightening; Debt Inflexibility; Lending Standards; Yield Spreads; JEL Classification: G12; G21; G23;
The authors study how credit supply frictions in the regional availability of debt financing in the U.S. affect corporate yield spreads.The authors 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.The authors 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.