Credit Supply and Corporate Policies

This paper develops a model of corporate investment and financing decisions thatdiffers from previous contributions by recognizing that firms face uncertainty regardingtheir future access to credit markets and may have to search for creditors when raisingdebt financing. We show that accounting for credit supply uncertainty is critical in understandingcorporate policy choices and use the model to explain a key set of stylizedfacts in corporate finance. Notably, our model provides an explanation for the conservativedebt policy puzzle.[...]