Institutional Investors in Corporate Loans

I examine the corporate financing implications of nonbank institutional investors entering the market for corporate loans. Institutional loans have served primarily as a substitute for bank debt and corporate bonds rather than increasing leverage. When the supply of institutional loans increased in the years before 2008, firms decreased their use of other debt, a pattern that was reversed in the years immediately after 2008. The results have implications for understanding how shocks to the supply of credit affect corporate balance sheets and how to view the emergence of institutional investors into the market for corporate loans.