Dynamic Credit Constraints: Theory and Evidence from Credit Lines

Niklas Amberg, Tor Jacobson (), Vincenzo Quadrini () and Anna Rogantini Picco ()
Additional contact information
Tor Jacobson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Vincenzo Quadrini: University of Southern California, Marshall School of Business
Anna Rogantini Picco: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 422, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We use a comprehensive Swedish credit register to document that firms throughout the size distribution have access to fairly large and reasonably priced credit lines, but borrow relatively little from them. We rationalize this using a theoretical framework in which the expected cost of financial distress increases with current borrowing and lower credit-line utilization reflects tighter ‘dynamic’ credit constraints. Consistently with the predictions of the model, the data shows that there is a negative relation between firm-level uncertainty and credit-line utilization. We also find that firms increase borrowing in response to credit-limit increases, even when their current debt is far from the limit.

Keywords: Credit constraints; banks; uncertainty; credit lines; precautionary behavior (search for similar items in EconPapers)
JEL-codes: D22 E44 G21 G32 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2023-03-01
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0422

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