The Use of Bank Lines of Credit in Corporate Liquidity Management: A Review of Empirical Evidence

26 Pages Posted: 22 Jun 2010 Last revised: 21 Jan 2012

See all articles by Cem Demiroglu

Cem Demiroglu

Koc University, College of Administrative Sciences and Economics

Christopher M. James

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: June 21, 2010

Abstract

This paper reviews empirical evidence on the use of bank lines of credit as a source of corporate liquidity. Traditional explanation for lines of credit is that they provide insurance against liquidity shocks, in much the same as way hoarding cash does. However, recent empirical research suggests that access to lines of credit is contingent on the credit quality of the borrower as well as the financial condition of the lender. These findings suggest that lines of credit are an imperfect substitute for cash as a source of corporate liquidity.

Keywords: Line of credit, Cash, Liquidity, Bank, Credit Crisis

JEL Classification: G30, G31, G32, G21

Suggested Citation

Demiroglu, Cem and James, Christopher M., The Use of Bank Lines of Credit in Corporate Liquidity Management: A Review of Empirical Evidence (June 21, 2010). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1627942 or http://dx.doi.org/10.2139/ssrn.1627942

Cem Demiroglu (Contact Author)

Koc University, College of Administrative Sciences and Economics ( email )

Koc University
Sariyer
Istanbul, 34450
Turkey
90-212-338-1620 (Phone)
90-212-338-1653 (Fax)

HOME PAGE: http://https://sites.google.com/site/cemdemiroglu/

Christopher M. James

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-392-3486 (Phone)
352-392-0301 (Fax)

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