The Firm-Level Credit Multiplier / Murillo Campello, Dirk Hackbarth.

Format:

Book

Author/Creator:

Campello, Murillo.

Contributor:

National Bureau of Economic Research.

Hackbarth, Dirk.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17805.

NBER working paper series no. w17805

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

We study the effect of asset tangibility on corporate financing and investment decisions. Financially constrained firms benefit the most from investing in tangible assets because those assets help relax constraints, allowing for further investment. Using a dynamic model, we characterize this effect - which we call firm-level credit multiplier - and show how asset tangibility increases the sensitivity of investment to Tobin's Q for financially constrained firms. Examining a large sample of manufacturers over the 1971-2005 period as well as simulated data, we find support for our theory's tangibility-investment channel. We further verify that our findings are driven by firms' debt issuance activities. Consistent with our empirical identification strategy, the firm-level credit multiplier is absent from samples of financially unconstrained firms and samples of financially constrained firms with low spare debt capacity.

Notes:

Print version record

February 2012.