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The Firm-Level Credit Multiplier

50 Pages Posted: 29 Feb 2012  

Murillo Campello

Cornell University; National Bureau of Economic Research (NBER)

Dirk Hackbarth

Boston University Questrom School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 2012


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.

Keywords: Credit Multiplier, Capital Structure, Financing Constraints, Investment, Real Options

JEL Classification: G31, G32

Suggested Citation

Campello, Murillo and Hackbarth, Dirk, The Firm-Level Credit Multiplier (January 20, 2012). Journal of Financial Intermediation, Forthcoming; EFA 2008 Athens Meetings Paper. Available at SSRN: or

Murillo Campello

Cornell University ( email )

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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138

Dirk Hackbarth (Contact Author)

Boston University Questrom School of Business ( email )

Department of Finance
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)


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