Funding Liquidity Without Banks: Evidence from a Shock to the Cost of Very Short-Term Debt

58 Pages Posted: 13 Feb 2017 Last revised: 1 Jul 2019

See all articles by Felipe Restrepo

Felipe Restrepo

University of Western Ontario - Richard Ivey School of Business

Lina Cardona-Sosa

Central Bank of Colombia

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 18, 2019

Abstract

In 2011, Colombia instituted a tax on repayment of bank loans, which increased the cost of short-term bank credit more than long-term credit. Firms responded by cutting short-term loans for liquidity management purposes and increasing the use of cash and trade credit. In industries in which trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit provides an alternative source of liquidity that can insulate some firms from bank liquidity shocks.

Keywords: Short term debt, liquidity, trade credit, bank loans, cost of debt

JEL Classification: H25, H32, G21, G32

Suggested Citation

Restrepo, Felipe and Cardona-Sosa, Lina and Strahan, Philip E., Funding Liquidity Without Banks: Evidence from a Shock to the Cost of Very Short-Term Debt (June 18, 2019). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2915349 or http://dx.doi.org/10.2139/ssrn.2915349

Felipe Restrepo (Contact Author)

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Road
London, Ontario N6G 0N1
Canada

HOME PAGE: http://www.ivey.uwo.ca/faculty/directory/felipe-restrepo/

Lina Cardona-Sosa

Central Bank of Colombia ( email )

Carrera 7 #14-78
3551 de Bogotá
Colombia

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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