scholarly journals Do Analysts Influence Corporate Financing and Investment?

2006 ◽  
Author(s):  
John A. Doukas ◽  
Chansog (Francis) Kim ◽  
Christos Pantzalis
Keyword(s):  
Corporate Financing ◽  
Financing And Investment

The Response of Corporate Financing and Investment to Changes in the Supply of Credit

2010 ◽  
Vol 45 (3) ◽  
pp. 555-587 ◽  
Author(s):  
Michael Lemmon ◽  
Michael R. Roberts
Keyword(s):  
Trade Credit ◽  
Insurance Industry ◽  
Sharp Change ◽  
Bank Debt ◽  
Corporate Financing ◽  
Regulatory Changes ◽  
Alternative Sources ◽  
Financing And Investment ◽  
Investment Grade ◽  
Drexel Burnham Lambert

AbstractWe examine how shocks to the supply of credit impact corporate financing and investment using the collapse of Drexel Burnham Lambert, Inc.; the passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989; and regulatory changes in the insurance industry as an exogenous contraction in the supply of below-investment-grade credit after 1989. A difference-in-differences empirical strategy reveals that substitution to bank debt and alternative sources of capital (e.g., equity, cash balances, and trade credit) was limited, leading to an almost one-for-one decline in net investment with the decline in net debt issuances. Despite this sharp change in behavior, corporate leverage ratios remained relatively stable, a result of the contemporaneous decline in debt issuances and investment. Overall, our findings highlight how even large firms with access to public credit markets are susceptible to fluctuations in the supply of capital.

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