What is the real impact of the 2007 credit crisis? Are there sizeable effects of financial contracting on corporate financial policies following a shock to the supply of credit? Murillo Campello, Bruno Laranjeira, Scott Weisbenner and I examined this issue.
We find that firms whose long-term debt was maturing right after the third quarter of 2007 reduced capital investment by 2.5% more on a quarterly basis than a control group of otherwise similar firms whose debt was scheduled to mature well after 2008. Interestingly, this relationship between timing of debt maturity and subsequent investment decisions holds only for the recent financial crisis and appears to have no relevance at other times. Inability of firms to refinance the maturing portion of long-term debt seems to have impacted subsequent investment decisions.
Reference: Heitor Almeida, Murillo Campello, Bruno Laranjeira, and Scott Weisbenner, “Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis.” (NBER Working Paper No. 14990).
Professor of Finance and Stanley C. and
Joan J. Golder Chair in Corporate Finance