NBER Working Paper – Corporate Debt, Boom-Bust Cycles, and Financial Crises

Victoria Ivashina, Ṣebnem Kalemli-Özcan, Luc Laeven, Karsten Müller

March 2024


Using a new dataset on sectoral credit exposures covering financial and non-financial sectors in 115 economies over the period 1940–2014, we document the following evidence that corporate debt plays a key role in explaining boom-bust cycles, financial crises, and slow macroeconomic recoveries: (i) corporate debt accounts for two thirds of the aggregate credit expansion before crises and three quarters of total nonperforming loans during the bust; (ii) expansions in corporate debt predict crises similarly to household debt; (iii) a measure of imbalance in credit growth flowing disproportionately to some sectors, such as construction and non-bank financial intermediation, is associated with crises; and (iv) the recovery from financial crises is slower after a boom in corporate debt, especially when backed by procyclical collateral values, due to higher nonperforming loans.

NBER Working Paper No.18873 – Corporate Debt, Boom-Bust Cycles, and Financial Crises