Liquidity Management and Corporate Investment During a Financial Crisis

Murillo Campello, Erasmo Giambona (), John R. Graham and Campbell Harvey ()

No 16309, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E32 G31 G32 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-bec and nep-mac
Note: CF EFG IFM
References: View complete reference list from CitEc
Citations: View citations in EconPapers (79)

Published as Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2011. "Liquidity Management and Corporate Investment During a Financial Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1944-1979.

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Journal Article: Liquidity Management and Corporate Investment During a Financial Crisis (2011)
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