Access to capital, investment, and the financial crisis

• Published in: Journal of financial economics Vol. 110; no. 2; pp. 280 - 299
• Main Authors: Kahle, Kathleen M., Stulz, René M.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.11.2013; Elsevier Sequoia S.A
• Subjects: Bank loans; Bank relationships; Bankruptcy; Borrowing; Capital expenditures; Cash holdings; Corporate borrowing; Corporate debt; Corporate investment; Credit constraints; Credit supply; Economic crisis; Financial crisis; Financial economics; Financial services; Investment analysis; Studies; U.S.A; United States > US; Credit supply; Credit constraints; G31; G32; Corporate borrowing; Corporate investment; Bank relationships; Cash holdings; Financial crisis
• ISSN: 0304-405X; 1879-2774
• DOI: 10.1016/j.jfineco.2013.02.014

During the recent financial crisis, corporate borrowing and capital expenditures fall sharply. Most existing research links the two phenomena by arguing that a shock to bank lending (or, more generally, to the corporate credit supply) caused a reduction in capital expenditures. The economic significance of this causal link is tenuous, as we find that (1) bank-dependent firms do not decrease capital expenditures more than matching firms in the first year of the crisis or in the two quarters after Lehman Brother's bankruptcy; (2) firms that are unlevered before the crisis decrease capital expenditures during the crisis as much as matching firms and, proportionately, more than highly levered firms; (3) the decrease in net debt issuance for bank-dependent firms is not greater than for matching firms; (4) the average cumulative decrease in net equity issuance is more than twice the average decrease in net debt issuance from the start of the crisis through March 2009; and (5) bank-dependent firms hoard cash during the crisis compared with unlevered firms.