Liquidity Management and Corporate Investment During a Financial Crisis / Murillo Campello, Erasmo Giambona, John R. Graham, Campbell R. Harvey.

Format:

Book

Author/Creator:

Campello, Murillo.

Contributor:

National Bureau of Economic Research.

Giambona, Erasmo.

Graham, John R.

Harvey, Campbell R.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16309.

NBER working paper series no. w16309

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

This paper uses a unique dataset to study how firms managed liquidity during the financial crisis. Our analysis provides new insights on the interactions between internal liquidity, external funds, and real corporate decisions, such as investment and employment. We first describe how companies used credit lines during the crisis (access, size of facilities, and drawdown activity), the conditions under which these facilities were granted (fees, markups, maturity, and collateral), and whether managers had difficulties in renewing or initiating lines. We also describe the dynamics of credit line violations and the outcome of subsequent renegotiations. We show how companies substitute between credit lines and internal liquidity (cash and profits) when facing a severe credit shortage. Looking at real-side decisions, we find that credit lines are associated with greater spending when companies are not cash-strapped. Firms with limited access to credit lines, on the other hand, appear to choose between saving and investing during the crisis. Our evidence indicates that credit lines eased the impact of the financial crisis on corporate spending.

Notes:

Print version record

August 2010.