Bank credit tightening, debt market frictions, and corporate yield spreads.

We study how credit supply frictions in the regional availability of debt financing in the U.S. affect corporate yield spreads. We define a measure of debt inflexibility that captures the firm's inability to buffer a tightening in bank credit by replacing bank loans with corporate bonds. We document that more inflexible firms suffer a higher increase in yield spreads as bank credit tightens. This happens for both market-wide tightening in lending standards and firm-specific tightening upon loan covenant violations. Moreover, inflexible firms display a closer connection between changes in yield spreads and stock returns. • We study how frictions in the regional availability of debt financing reduce the bank credit supply. • We look at the link between bank credit supply and corporate yield spreads. • We show a strong regional segmentation in the debt market. • We document that more inflexible firms suffer a bigger increase in yield spreads as bank credit tightens. [ABSTRACT FROM AUTHOR]