Commercial Paper, Corporate Finance, and the Business Cycle: A Microeconomic Perspective

60 Pages Posted: 25 Jul 2000 Last revised: 21 Apr 2008

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Charles P. Himmelberg

Goldman, Sachs & Co.

Paul Wachtel

New York University - Stern School of Business

Date Written: September 1994

Abstract

Little is known about the characteristics of individual commercial paper issuers, or about the reasons for the countercyclical issuance of commercial paper in the aggregate. To address these issues we construct a new panel dataset linking Moody's data on commercial paper issues with Standard and Poor's Compustat. High credit quality is a requirement for entry into the commercial paper market, but long-term credit quality (bond rating) is not a sufficient statistic for short-term quality. These characteristics allow firms to issuenear-riskless short-term debt and supply a near-money asset to themarket, thereby reducing their interest costs by the amount of the" commercial paper liquidity premium. We find that low-credit-quality firms have higher stocks of inventories and financial assets. In contrast to the countercyclicality of aggregate commercial paper, we find that firm-level commercial paper is procyclical. Our data support three explanations for this apparent contradiction, all of which recognize that commercial paper issuers are atypical. First, firms of high credit quality can use commercial paper to finance inventory accumulation during downturns. Second, they also can use commercial paper to finance countercyclical increases in accounts receivable. This suggests that commercial paper issuers serve as intermediaries for other firms during downturns. Third, it may be that portfolio demand for commercial paper -- a highly liquid, safe asset -- increases during downturns.

Suggested Citation

Calomiris, Charles W. and Himmelberg, Charles P. and Wachtel, Paul, Commercial Paper, Corporate Finance, and the Business Cycle: A Microeconomic Perspective (September 1994). NBER Working Paper No. w4848. Available at SSRN: https://ssrn.com/abstract=226534

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
601 Uris, Dept. of Finance & Economics
New York, NY 10027
United States
212-854-8748 (Phone)
212-316-9219 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Charles P. Himmelberg

Goldman, Sachs & Co. ( email )

200 West St
New York, NY 10233
917-343-3218 (Phone)

Paul Wachtel

New York University - Stern School of Business ( email )

44 West 4th St.
New York, NY 10012
United States
212-998-4030 (Phone)
212-995-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~pwachtel

Register to save articles to
your library

Register

Paper statistics

Downloads
98
Abstract Views
3,765
rank
267,005
PlumX Metrics