Working Paper: NBER ID: w26458
Authors: Sergey Chernenko; Isil Erel; Robert Prilmeier
Abstract: Analyzing hand-collected credit agreements data for a random sample of middle-market firms during 2010-2015, we find that a third of all loans is extended directly by nonbank financial intermediaries. Nonbanks lend to less profitable and more levered firms that undergo larger changes in size around loan origination. The probability of borrowing from a nonbank jumps by 34% as EBITDA falls below zero, an effect that is largely due to bank regulation. Controlling for firm and loan characteristics, nonbank loans carry 190 basis points higher interest rates, suggesting that access to funding, rather than prices, is why firms borrow from nonbanks.
Keywords: Nonbank lending; Bank regulation; Middle-market firms; Credit agreements
JEL Codes: G21; G23; G30; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nonbank loans (G21) | Interest rates compared to bank loans (G21) |
| Nonbank loans (G21) | Positive abnormal announcement returns (G14) |
| Bank regulation (G28) | Ability of commercial banks to lend to firms with negative EBITDA (G21) |
| Ability of commercial banks to lend to firms with negative EBITDA (G21) | Firms seeking funding from nonbank lenders (G21) |
| Firms with negative EBITDA (G32) | Probability of borrowing from nonbanks (G21) |
| Strictness of bank regulation (G28) | Nonbank lending behavior (G21) |