48 Pages Posted: 7 Aug 2009 Last revised: 21 Nov 2010
Date Written: November 19, 2010
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.
Keywords: Financial crisis, liquidity management, investment spending, credit lines, drawdown activity, cash savings
JEL Classification: G31, G32
Suggested Citation: 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: https://ssrn.com/abstract=1444009 or http://dx.doi.org/10.2139/ssrn.1444009