Bank Lines of Credit in Corporate Finance: An Empirical Analysis

Posted: 17 Mar 2009

See all articles by Amir Sufi

Amir Sufi

University of Chicago - Booth School of Business; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: March 2009


I empirically examine the factors that determine whether firms use bank lines of credit or cash in corporate liquidity management. I find that bank lines of credit, also known as revolving credit facilities, are a viable liquidity substitute only for firms that maintain high cash flow. In contrast, firms with low cash flow are less likely to obtain a line of credit, and they rely more heavily on cash in their corporate liquidity management. An important channel for this correlation is the use of cash flow-based financial covenants by banks that supply credit lines. I find that firms must maintain high cash flow to remain compliant with covenants, and banks restrict firm access to credit facilities in response to covenant violations. Using the cash-flow sensitivity of cash as a measure of financial constraints, I provide evidence that lack of access to a line of credit is a more statistically powerful measure of financial constraints than traditional measures used in the literature.

Suggested Citation

Sufi, Amir, Bank Lines of Credit in Corporate Finance: An Empirical Analysis (March 2009). The Review of Financial Studies, Vol. 22, Issue 3, pp. 1057-1088, 2009, Available at SSRN: or

Amir Sufi (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States


1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics