Switching to Bonds When Loans Are Scarce: Evidence from Four U.S. Crises

To what extent do public firms switch to bonds when bank credit supply falls, and how do their real outcomes compare to those of other fi rms? Examining four U.S. crises during 1988-2011 shows that only 8.4% of debt-receiving firms broke their reliance on loans and switched to bonds. These were high quality firms that, despite incurring large costs, did not suffer signifi cantly more in output, investment, and employment than predominantly bond-issuing rms. Most rms either received loans, or no debt, and fared signifi cantly worse. Thus, public fi rms do not widely substitute bonds for loans, remaining vulnerable to bank health fluctuations.