Aggregate implications of corporate debt choices

Nicolas Crouzet*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

32 Scopus citations


This article studies the transmission of financial shocks in a model where corporate credit is intermediated via both banks and bond markets. In choosing between bank and bond financing, firms trade-offthe greater flexibility of banks in case of financial distress against the lower marginal costs of large bond issuances. I find that, in response to a contraction in bank credit supply, aggregate bond issuance in the corporate sector increases, but not enough to avoid a decline in aggregate borrowing and investment. Keeping leverage constant while retiring bank debt would expose firms to a higher risk of financial distress; they offset this by reducing total borrowing. A calibration of the model to the Great Recession indicates that this precautionary mechanism can account for one-third of the total decline in investment by firms with access to bond markets.

Original languageEnglish (US)
Pages (from-to)1635-1682
Number of pages48
JournalReview of Economic Studies
Issue number3
StatePublished - Jul 1 2018


  • Banks
  • Bonds
  • Financial frictions
  • Financial structure
  • Firm dynamics
  • Investment
  • Output
  • Productivity risk

ASJC Scopus subject areas

  • Economics and Econometrics


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