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Financial Flexibility: At What Cost?

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  • Garmaise, Mark J.
  • Natividad, Gabriel

Abstract

Firms strategically borrow in different locations. Approximately one-quarter of Peruvian companies with operations in multiple areas source their financing from more than one province. Mining windfalls generate finance supply shocks, leading to the provision of more credit at lower average rates, and we show that firms exploit geographic financial flexibility by concentrating their borrowing in booming locations. Firms are less likely to initiate borrowing in new markets when their current borrowing provinces are thriving. The pursuit of flexibility in borrowing markets, however, degrades a firm’s relationships with its existing lenders, thereby heightening its risk of future financial distress.

Suggested Citation

  • Garmaise, Mark J. & Natividad, Gabriel, 2021. "Financial Flexibility: At What Cost?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(1), pages 249-282, February.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:1:p:249-282_9
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    Cited by:

    1. Natividad, Gabriel, 2019. "Base tributaria y discontinuidades geopolíticas [Tax base and geopolitical discontinuities]," MPRA Paper 113169, University Library of Munich, Germany.
    2. Gabriel Natividad, 2022. "Decentralizing investment: Evidence from municipal organization after close elections," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 734-761, August.

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