Weathering Cash Flow Shocks
45 Pages Posted: 5 May 2017 Last revised: 31 Dec 2017
Date Written: September 7, 2017
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: Suggested Citation