Editor’s Note: The following post comes to us from Anil Shivdasani, Professor of Finance at the University of North Carolina, and Yi Hui Wang of the Department of Finance at the Chinese University of Hong Kong.
In our forthcoming Journal of Finance paper, Did Structured Credit Fuel the LBO Boom? we study how large shifts in the availability of credit affected the corporate use of leverage by examining LBO transactions that rely heavily on debt financing. We argue that developments that led to the growth of structured credit contributed to increased credit supply that at least partially fueled the recent LBO boom. Our evidence highlights important linkages between structured credit, the dual role of banks in the structured credit markets as loan originators and underwriters, and the corporate use of leverage.
