Abstract

http://ssrn.com/abstract=1444009
 
 

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Liquidity Management and Corporate Investment During a Financial Crisis


Murillo Campello


Cornell University; National Bureau of Economic Research (NBER)

Erasmo Giambona


University of Amsterdam - Finance Group; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

John R. Graham


Duke University; National Bureau of Economic Research (NBER)

Campbell R. Harvey


Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

November 19, 2010


Abstract:     
This paper uses a unique dataset to study how firms managed liquidity during the 2008-09 financial crisis. Our analysis provides new insights on 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 characteristics of these facilities (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.

Number of Pages in PDF File: 48

Keywords: Financial crisis, liquidity management, investment spending, credit lines, drawdown activity, cash savings

JEL Classification: G31, G32

working papers series





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Date posted: August 7, 2009 ; Last revised: November 21, 2010

Suggested Citation

Campello, Murillo and Giambona, Erasmo and Graham, John R. and Harvey, Campbell R., Liquidity Management and Corporate Investment During a Financial Crisis (November 19, 2010). Available at SSRN: http://ssrn.com/abstract=1444009 or http://dx.doi.org/10.2139/ssrn.1444009

Contact Information

Murillo Campello (Contact Author)
Cornell University ( email )
114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States
HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
Erasmo Giambona
University of Amsterdam - Finance Group ( email )
Roetersstraat 18
Amsterdam, 1018WB
Netherlands
+31 20 525 5321 (Phone)
HOME PAGE: http://www1.fee.uva.nl/pp/egiambona/
Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )
Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands
John Robert Graham
Duke University ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Campbell R. Harvey
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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