Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
Upside of Inequality Oxford Unintended Consequences

AI Summary. Firms with access to both bank loans and corporate bonds are borrowing a greater share through bonds, and those bonds' maturities have shortened both absolutely and relative to the same firms' loans. The shift is driven by smaller firms, whose loan share fell from about 60% to 50%.

Nina Boyarchenko and Leonardo Elias Federal Reserve Bank of New York
Date Posted:

A @NewYorkFed analysis finds that the share of bank-intermediated credit for small firms has fallen from 58% in 2002 to 50% in 2022, as small firms increasingly rely on bond financing.

Are firms shifting from bank loans to shorter-maturity corporate bonds?

Core argument: Firms below the 75th percentile of the size distribution cut their share of intermediated credit from about 60% to 50%, while the share for the largest 25% of firms held steady near 30%.

Firms that can borrow through both bank loans and corporate bonds are increasingly borrowing a greater fraction of debt through corporate bonds and that the maturity of those bonds has shortened dramatically since 2002, both in an absolute sense and relative to the maturity of loans the same firms have outstanding. Thus, firms are relying increasingly more on the corporate bond market as a source of funding and are accessing the corporate bond market more frequently, as existing corporate bonds mature more frequently. Firms that have access to both intermediated credit and debt markets seem to be increasingly relying on public debt markets. The trend is driven by firms in the bottom 75th percentile of the size distribution. While the share of intermediated credit for the top 25th percentile of firms has stayed relatively constant (at around 30%), the share of loans has decreased considerably for the rest of the firms (from around 60% to 50%). That is, smaller firms that have access to both bond and loan markets are increasingly relying more on bond financing.

Takeaways by Macro Roundup® AI

  1. Firms below the 75th percentile of the size distribution cut their share of intermediated credit from about 60% to 50%, while the share for the largest 25% of firms held steady near 30%.
  2. Firms with access to both bank loans and corporate bonds are borrowing a greater fraction of debt through bonds, and the maturity of those bonds has shortened sharply since 2002, both in absolute terms and relative to their outstanding loans.
  3. As existing corporate bonds mature more frequently, firms are accessing the corporate bond market more often as a source of funding.

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  • Corporate Debt, Boom-Bust Cycles, and Financial Crises — Using a dataset on sectoral credit exposure for 115 economies, the authors find corporate debt accounts for two-thirds of credit expansion before financial crises and three-quarters of nonperforming loans during busts, and that corporate debt expansions predict crises similarly to household debt. Recoveries are slower after corporate debt booms.
  • The Corporate Debt Maturity Wall: Implications for Capex and Employment — The authors estimate the average interest rate on outstanding corporate debt will rise from 4.20% to 4.50%, lifting private sector interest expense as a share of gross output by 0.25 percentage points. They project this would reduce capital spending growth by up to 0.25 percentage points and labor cost growth by up to 0.15.
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