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This paper studies the rise of direct lending using a comprehensive dataset of investments by business development companies (BDC). We exploit three exogenous shocks to credit supply, including new banking regulations and a major finance company collapse, to establish that BDC capital acts as a substitute for traditional financing. Using firm-level data, we further document that firms’ access to BDC funding stimulates their employment growth and patenting activity. Beyond credit provision, BDCs contribute to firm growth through managerial assistance.
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Direct lenders in the U.S. middle market
This paper studies the rise of direct lending using a comprehensive dataset of investments by business development companies (BDC). We exploit three exogenous shocks to credit supply, including new banking regulations and a major finance company collapse, to establish that BDC capital acts as a substitute for traditional financing. Using firm-level data, we further document that firms’ access to BDC funding stimulates their employment growth and patenting activity. Beyond credit provision, BDCs contribute to firm growth through managerial assistance.
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- Award ID(s):
- 2018973
- PAR ID:
- 10645939
- Publisher / Repository:
- Elsevier
- Date Published:
- Journal Name:
- Journal of Financial Economics
- Volume:
- 162
- ISSN:
- 0304-405X
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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