The Working Capital Credit Multiplier

63 Pages Posted: 16 Nov 2017 Last revised: 2 Mar 2023

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Daniel R. Carvalho

Indiana University - Kelley School of Business

Taehyun Kim

Chung-Ang University

Date Written: July 16, 2024

Abstract

We provide novel evidence that funding frictions can limit firms’ short-term investments in receivables and inventories, reducing their production capacity. We propose a credit multiplier driven by these considerations and empirically isolate its importance by comparing how a similar firm responds to shocks differently when these shocks are initiated in their most profitable quarter (“main quarter”). We implement this test using recurring and unpredictable shocks (e.g., oil shocks) and provide extensive evidence supporting our identification strategy. Our results suggest that funding constraints and credit multiplier effects are significant for smaller firms that heavily rely on financing from suppliers.


Keywords: financial accelerator, seasonality, funding frictions, accounts payable, short-term financial planning

JEL Classification: G31, G32, G38, E32

Suggested Citation

Almeida, Heitor and Carvalho, Daniel R. and Kim, Taehyun, The Working Capital Credit Multiplier (July 16, 2024). 29th Annual Conference on Financial Economics & Accounting 2018, Available at SSRN: https://ssrn.com/abstract=3071018 or http://dx.doi.org/10.2139/ssrn.3071018

Heitor Almeida (Contact Author)

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Daniel R. Carvalho

Indiana University - Kelley School of Business ( email )

Bloomington, IN 47405
United States

Taehyun Kim

Chung-Ang University ( email )

Heuksok-ro 84, Dongjak-gu
310-1108
Seiul, 06974
Korea, Republic of (South Korea)
8228205627 (Phone)

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