Firms as Liquidity Providers: Evidence from the 2007-2008 Financial Crisis

50 Pages Posted: 17 Mar 2012 Last revised: 29 May 2013

See all articles by Emilia Garcia-Appendini

Emilia Garcia-Appendini

University of Zurich - Department of Banking and Finance

Judit Montoriol-Garriga

La Caixa

Date Written: October 2, 2012

Abstract

Using a supplier-client matched sample, we study the effect of the 2007-2008 financial crisis on between-firm liquidity provision. Consistent with a causal effect of a negative shock to bank credit, we find that firms with high pre-crisis liquidity levels increased the trade credit extended to other corporations and subsequently experienced better performance as compared to ex-ante cash-poor firms. Trade credit taken by constrained firms increased during this period. These findings are consistent with firms providing liquidity insurance to their clients when bank credit is scarce and provide an important precautionary savings motive for accumulating cash reserves.

Keywords: Trade credit, corporate liquidity, crisis, financial constraints, cash, lines of credit

JEL Classification: G01, G30, G32

Suggested Citation

Garcia-Appendini, Emilia and Montoriol-Garriga, Judit, Firms as Liquidity Providers: Evidence from the 2007-2008 Financial Crisis (October 2, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2023583 or http://dx.doi.org/10.2139/ssrn.2023583

Emilia Garcia-Appendini (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Judit Montoriol-Garriga

La Caixa ( email )

Av Diagonal 629
Barcelona, 08028
Spain

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