Subprime crisis : the impact of different types of debt on corporate performance.

• Main Authors: Lim, Chee Hau., Neo, Wei Ling., Lim, Brandon Weilong.
• Other Authors: Nanyang Business School
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Business::Finance::Corporate finance::Corporate debt
• Online Access: http://hdl.handle.net/10356/48120
• Institution: Nanyang Technological University

This study examines the impact of different types of debt used by firms on corporate performance during the subprime crisis. We find that the dependency on Term Loans during the crisis would result in the decline in corporate performance during the crisis period. On the other hand, the research findings show that if firms were dependent on Other Debts before the crisis, these firms would experience an improvement in corporate performance during the crisis period. Likewise, if firms were able to access both Term Loans and Revolving Credit Lines amidst the credit crunch, these firms would be able to experience an increase in their corporate performance after the crisis period. The second part of the study includes the examination of the effect of the accessibility to drawn and undrawn credit lines on the differential impact on corporate performance. For pre-crisis to crisis period, result indicates that firms possessing pre-existing Undrawn Credit Lines during the pre-crisis period would not perform significantly better than firms which did not have access to Undrawn Credit Lines. We attribute this finding to the likelihood of increased regulatory within the global banking industry and thus reduced accessibility to Undrawn Credit Lines for firms which failed to project stable cash flows. For crisis to post-crisis period, we find that firms that had access to Undrawn Credit Lines during the crisis were able to perform better after the crisis, as compared to firms that did not have access to the Undrawn Credit Lines.