Johannes Karge

Do corporate bond markets function as an aggregate “spare tire” when banks are impaired? I study this question using a new long-run dataset of primary bond issuance by issuer sector for 19 countries from the nineteenth century to the present. The data distinguish non-financial corporations, financial corporations, and governments, allowing me to trace how primary bond-market financing is reallocated during systemic banking crises. I find that non-financial corporate bond issuance contracts sharply and persistently after crisis onset rather than expanding to replace impaired bank lending. Three years after a crisis, issuance is roughly one-half below its pre-crisis level, while government issuance rises strongly and financial-sector issuance increases only temporarily. The contraction remains pronounced when issuance is scaled by GDP, investment, or pre-crisis bank credit, and is stable across historical periods, crisis definitions, and alternative specifications. Combining the issuance data with historical credit spreads shows that crises accompanied by larger credit-market repricing experience substantially deeper subsequent contractions in non-financial corporate issuance, consistent with tighter market conditions contributing to the decline. Countries with deeper pre-crisis bond markets subsequently experience stronger investment recovery, but this relationship is not distinctly stronger during banking crises. The results reveal an aggregation wedge between firm-level substitution and aggregate financing: selected firms may retain access to bond markets when banks retrench, but this margin is not large enough to stabilize non-financial corporate financing in systemic crises.