Johannes Karge

Do corporate bond markets stabilize corporate financing when banks are impaired? Theory delivers an ambiguous aggregate prediction: firms with bond-market access may substitute away from banks, while constrained firms may lose financing and bank loans and bonds may be complements. I study which force dominates using a new long-run dataset of primary bond issuance by issuer sector for 19 countries from the nineteenth century to the present. Non-financial corporate bond issuance falls sharply and persistently after systemic banking crises: three years after crisis onset, issuance is roughly one-half below its pre-crisis level. By contrast, government issuance rises strongly, while financial-sector issuance increases only temporarily. The NFC contraction is robust to alternative normalizations and historical periods and is substantially deeper in crises with severe risky-debt-market repricing. Countries with deeper pre-crisis bond markets are associated with stronger subsequent investment growth, but this relationship is not distinctly stronger during banking crises. Thus, while theory permits substitution by firms with market access, the aggregate response is a contraction rather than a corporate spare-tire expansion.