Weathering Cash Flow Shocks

45 Pages Posted: 5 May 2017 Last revised: 31 Dec 2017

See all articles by James R. Brown

James R. Brown

Iowa State University - Department of Finance

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Ivan Ivanov

Board of Governors of the Federal Reserve System

Date Written: September 7, 2017

Abstract

We show that unexpectedly severe winter weather, which is arguably exogenous to firm and bank fundamentals, represents a significant cash flow shock for the average bank-borrowing firm. Firms respond to such shocks by increasing credit line use, but do not significantly adjust cash reserves, non-cash working capital, or real activities. The increased credit line use occurs within one calendar quarter of the cash flow shock and is accompanied by an increase in credit line size, for all but the most distressed borrowers. These results highlight the role of banks in mitigating transitory cash flow shocks to firms.

JEL Classification: G32

Suggested Citation

Brown, James R. and Gustafson, Matthew and Ivanov, Ivan, Weathering Cash Flow Shocks (September 7, 2017). Available at SSRN: https://ssrn.com/abstract=2963444 or http://dx.doi.org/10.2139/ssrn.2963444

James R. Brown

Iowa State University - Department of Finance ( email )

Ivy College of Business
Ames, IA 50011
United States
5152944668 (Phone)

Matthew Gustafson

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Ivan Ivanov (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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