Agency Costs and Corporate Liquidity Demand: Evidence from Bank Loan Commitment Usage during the Financial Crisis

40 Pages Posted: 11 Aug 2010 Last revised: 28 Jan 2017

See all articles by Ki Young Park

Ki Young Park

Yonsei University

Doowon Lee

Yonsei University - Department of Economics

Date Written: January 27, 2017

Abstract

Using a large contract-level, high frequency database of bank loan commitments from June 2007 to May 2009, we fi nd that fi rms' takedown behavior regarding credit lines is very di erent depending on the fi rms' creditworthiness. Usage patterns of rms with poor credit quality are more closely associated with credit spreads, a measure of market liquidity level. Meanwhile, those of rms with good credit quality are more closely related to the market interest rates, a key determinant of cost of using loan commitments. This contrast suggests that the availability of funds is more important than the cost of funds for rms with limited access to external fi nancing. We discuss this finding's implications for the bank lending channel and procyclical bank regulatory capital.

Keywords: loan commitments, flight to quality, business cycles

JEL Classification: E40, E44, G21

Suggested Citation

Park, Ki Young and Lee, Doowon, Agency Costs and Corporate Liquidity Demand: Evidence from Bank Loan Commitment Usage during the Financial Crisis (January 27, 2017). Available at SSRN: https://ssrn.com/abstract=1656212 or http://dx.doi.org/10.2139/ssrn.1656212

Ki Young Park (Contact Author)

Yonsei University ( email )

Yonsei University
Seoul
Korea, Republic of (South Korea)

Doowon Lee

Yonsei University - Department of Economics ( email )

50 Yonsei-Ro
Seoul, 120-749
Korea

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