The Impact of Credit Line Drawdowns on Investment Evidence from the Financial Crisis

50 Pages Posted: 25 Jul 2016 Last revised: 27 Jul 2016

See all articles by John A. Doukas

John A. Doukas

Old Dominion University - Strome College of Business

Kimberly F. Luchtenberg

American University - Department of Finance and Real Estate

Date Written: October 18, 2015

Abstract

Using a unique dataset of credit line drawdowns and liquidity hedging, we study the relation between credit line usage and corporate investment. In line with theoretical predictions that credit lines aid firms to invest during times of limited credit availability, our findings reveal that the liquidity insurance function of lines of credit does facilitate the undertaking of value-enhancing investments during severe credit market conditions. Although the financial crisis did reduce firm investment, this effect was mitigated somewhat by credit line usage. We also find that in contrast to non-crisis times, during the crisis older, higher net worth firms were more likely to have access to credit lines. Similarly, firms with a higher firm value and bond rating were more likely to have extensive credit line drawdowns during the crisis than non-crisis years.

Keywords: Credit Line Drawdowns, Investment, Financial Crisis

JEL Classification: G21, G31, G32, E22

Suggested Citation

Doukas, John A. and Luchtenberg, Kimberly F., The Impact of Credit Line Drawdowns on Investment Evidence from the Financial Crisis (October 18, 2015). Available at SSRN: https://ssrn.com/abstract=2813936 or http://dx.doi.org/10.2139/ssrn.2813936

John A. Doukas (Contact Author)

Old Dominion University - Strome College of Business ( email )

2080 Constant Hall
Suite 2080
Norfolk, VA 23529-0222
United States
757-683-5521 (Phone)

HOME PAGE: http://www.efmaefm.org/0DOUKAS/doukas.php

Kimberly F. Luchtenberg

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

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