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Bank Loan Supply, Lender Choice, and Corporate Capital Structure



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    • Leary is from Johnson Graduate School of Management, Cornell University. I would like to thank the Acting Editor, Mitchell Petersen. I also thank Alon Brav, John Graham, Roni Michaely, Manju Puri, Michael Roberts, David Robinson, Vish Viswanathan, Jaime Zender, two anonymous referees, and seminar participants at Duke University, Boston College, Columbia University, Cornell University, Emory University, Harvard Business School, Northwestern University, Ohio State University, Stanford University, University of Chicago, University of Illinois, University of North Carolina, University of Notre Dame, University of Rochester, University of Utah, University of Washington, Vanderbilt University, the 2006 Federal Reserve Bank of Chicago Conference on Bank Structure and Competition, and the 2006 Western Finance Association Meetings for helpful comments.


This paper explores the relevance of capital market supply frictions for corporate capital structure decisions. To identify this relationship, I study the effect on firms' financial structures of two changes in bank funding constraints: the 1961 emergence of the market for certificates of deposit, and the 1966 Credit Crunch. Following an expansion (contraction) in the availability of bank loans, leverage ratios of bank-dependent firms significantly increase (decrease) relative to firms with bond market access. Concurrent changes in the composition of financing sources lend further support to the role of credit supply and debt market segmentation in capital structure choice.