Highlights :

• We provide a cross-country study of the business cycle behavior of corporate debt structure for twenty five countries over the period 1989-2013.
• The substitution of bonds for loans, widely described during the Great Recession, is a general pattern of recoveries.
• Economies with high bond share and important bond-loan substitution recover from the recessions faster.
• The interaction between economic recoveries and corporate debt structure is stronger in recessions with banking crisis than in normal récessions.
• A theoretical model is developed to explain how the bond-loan substitution softens the recession costs.

 Abstract :
This paper analyzes the business cycle behavior of the corporate debt structure and its interaction with economic recovery. The debt structure is measured as the share of bonds in the total credit to non-financial corporations for a quarterly panel of twenty five economies over the period 1989-2013. We first show that the substitution of loans for bonds in recoveries is a regular property of business cycles. Secondly, we provide evidence that economies with high bond share and important bond-loan substitution recover from the recessions faster. The relation between the corporate debt structure and the economic recovery is maintained when controls for the developments of financial markets are introduced. A theoretical model is developed to explain this relation as the outcome of financial constraints on bank credit supply.

 Keywords : Corporate Debt | Bonds Markets | Banking | Business Cycles | Recovery | Financial Frictions

 JEL : E3, E4, G1, G2