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Firms as liquidity providers: Evidence from the 2007–2008 financial crisis

Emilia Garcia-Appendini () and Judit Montoriol-Garriga
Authors registered in the RePEc Author Service: Judit Montoriol Garriga ()

Journal of Financial Economics, 2013, vol. 109, issue 1, 272-291

Abstract: Using a supplier–client matched sample, we study the effect of the 2007–2008 financial crisis on between-firm liquidity provision. Consistent with a causal effect of a negative shock to bank credit, we find that firms with high precrisis liquidity levels increased the trade credit extended to other corporations and subsequently experienced better performance as compared with ex ante cash-poor firms. Trade credit taken by constrained firms increased during this period. These findings are consistent with firms providing liquidity insurance to their clients when bank credit is scarce and offer an important precautionary savings motive for accumulating cash reserves.

Keywords: Trade credit; Corporate liquidity; Crisis; Financial constraints; Liquidity (search for similar items in EconPapers)
JEL-codes: G01 G30 G32 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1016/j.jfineco.2013.02.010

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