Corporate Debt, Boom-Bust Cycles, and Financial Crises
Using a new dataset on sectoral credit exposures in 114 economies from 1940 to 2014, we provide evidence that corporate debt plays a key role in explaining macroeconomic boom-bust cycles, financial crises, and sluggish recoveries. We find that: (i) corporate debt accounts for two-thirds of aggregate credit expansion and three-quarters of nonperforming loans during downturns; (ii) firm credit growth is linked to future crises more so when it is backed by pro-cyclical collateral; (iii) expansions in corporate debt predict crises, conditional on expansions in household credit; (iv) increasing dispersion in corporate credit also predicts financial crises, consistent with heterogeneous firm financial frictions; (v) financial crises following booms in corporate debt are associated with slower macro recoveries.
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Copy CitationVictoria Ivashina, Ṣebnem Kalemli-Özcan, Luc Laeven, and Karsten Müller, "Corporate Debt, Boom-Bust Cycles, and Financial Crises," NBER Working Paper 32225 (2024), https://doi.org/10.3386/w32225.Download Citation
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