Essays on macroeconomics and corporate finance

This thesis explores how capital market imperfections influence firm borrowing and macroeconomic outcomes. Chapter 1 uses U.S. syndicated loan data to show that stronger credit relationships between borrowers and lenders shift borrowing from collateral-based to earnings-based loans. I develop a model of limited commitment and asymmetric information, where repeated interactions allow lenders to learn about borrower quality. As relationships grow, lenders offer covenants linked to earnings in place of collateral, relaxing borrowing constraints. Empirically, I find that covenant use rises and collateral use declines with relationship strength, especially for smaller, more opaque firms, demonstrating a dynamic credit constraint driven by credit relationships. Chapter 2 examines the long-term shift in U.S. corporate loan contracting from covenant-based to collateral-based borrowing since the late 1990s, coinciding with a secular decline in interest rates. I develop a model in which banks and Nonbank Financial Institutions (NBFIs) differ in funding, regulation, and monitoring capacities. Lower interest rates diminish banks’ funding advantage, encouraging NBFI participation through loan securitization. In U.S. syndicated loan data, I show that interest rate-driven NBFI participation is associated with higher collateral incidence and lower covenant incidence. The results reveal a new channel through which monetary conditions influence the nature of firm credit constraints and shock transmissions. Chapter 3 studies how project heterogeneity interacts with financial frictions to shape credit relationships and aggregate investment. In a model of credit relationships under matching and liquidity allocation frictions, project heterogeneity raises continuation thresholds for low-productivity projects and lowers them for high-productivity projects, causing liquidity–productivity mismatches that amplify capital misallocation. Analytical results show that greater right-skewness in the productivity distribution increases relationship fragility. Temporary increases in the share of high-productivity projects can have prolonged adverse effects on investment, potentially pushing the economy into a no-investment equilibrium.