Corporate Governance and Corporate Financing and Investment during the 2007-2008 Financial Crisis

We examine the impact of the 2007-2008 financial crisis on nonfinancial firms' financing and investment activities and the role of corporate governance in alleviating the adverse consequences of the external capital supply shock. Employing a difference-in-differences research design, we find that better governance mitigates the disruption caused by the bank credit supply shock to firms' financing and investment activities. A variety of robustness tests suggest that our findings are unlikely to be driven by an endogeneity problem. We obtain similar results when we extend the sample period to include the delayed spillover from the banking sector to other capital market sectors.