Shortages in Corporate Liquidity during Crises and Normal Times: Evidence from SEC Filings
30 Pages Posted: 16 Aug 2017
Date Written: June 12, 2017
During the 2008-2010 financial crisis a large number of firms experienced acute liquidity shortages and adjusted real policies such as their employment and investment decisions. Searching the texts of approximately 900,000 SEC filings from the past twenty years, we document that these reactions were very similar to the ones implemented by firms that face shortages during more normal times. However, what made the crisis unique was that many of the affected firms were large, profitable and difficult to distinguish from the median public company. As a result, many widely-used financial constraint measures lost much of their informational content during the crisis and underestimated the number of affected firms. We discuss the theoretical and empirical implications of our findings and what they say about the nature of the financial crisis.
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