IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Commercial paper, corporate finance, and the business cycle: a microeconomic perspective

Listed author(s):
  • Calomiris, Charles W.
  • Himmelberg, Charles P.
  • Wachtel, Paul

Little is known about the characteristics of individual commercial paper issuers, or about the reasons for the countercyclical issuance of commercial paper in the aggregate. To address these issues we construct a new panel dataset linking Moody's data on commercial paper issues with Standard and Poor's Compustat. High credit quality is a requirement for entry into the commercial paper market, but long-term credit quality (bond rating) is not a sufficient statistic for short-term quality. These characteristics allow firms to issuenear-riskless short-term debt and supply a near-money asset to themarket, thereby reducing their interest costs by the amount of the" commercial paper liquidity premium. We find that low-credit-quality firms have higher stocks of inventories and financial assets. In contrast to the countercyclicality of aggregate commercial paper, we find that firm-level commercial paper is procyclical. Our data support three explanations for this apparent contradiction, all of which recognize that commercial paper issuers are atypical. First, firms of high credit quality can use commercial paper to finance inventory accumulation during downturns. Second, they also can use commercial paper to finance countercyclical increases in accounts receivable. This suggests that commercial paper issuers serve as intermediaries for other firms during downturns. Third, it may be that portfolio demand for commercial paper -- a highly liquid, safe asset -- increases during downturns.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/0167-2231(95)00034-W
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 42 (1995)
Issue (Month): 1 (June)
Pages: 203-250

as
in new window

Handle: RePEc:eee:crcspp:v:42:y:1995:i::p:203-250
Contact details of provider: Web page: http://www.elsevier.com/locate/jme

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window

  1. Slovin, Myron B & Sushka, Marie E & Polonchek, John A, 1993. " The Value of Bank Durability: Borrowers as Bank Stakeholders," Journal of Finance, American Finance Association, vol. 48(1), pages 247-266, March.
  2. Dwight M. Jaffee & Thomas Russell, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 651-666.
  3. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  4. Gilchrist, S. & Himmelberg, C.P., 1995. "Evidence on the Role of Cash Flow for Investment," Papers 95-29, Columbia - Graduate School of Business.
  5. Benjamin M. Friedman & Kenneth N. Kuttner, 1993. "Economic activity and the short-term credit markets: an analysis of prices and quantities," Working Paper Series, Macroeconomic Issues 93-17, Federal Reserve Bank of Chicago.
  6. Mian, Shehzad L & Smith, Clifford W, Jr, 1992. " Accounts Receivable Management Policy: Theory and Evidence," Journal of Finance, American Finance Association, vol. 47(1), pages 169-200, March.
  7. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
  8. Jeffrey K. MacKie-Mason, 1990. "Do Firms Care Who Provides Their Financing?," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 63-104 National Bureau of Economic Research, Inc.
  9. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
  10. Paul Wachtel & Peter Rousseau, 1994. "Financial Intermediation and Economic Growth: A Historical Comparison of the U.S., U.K. and Canada," Working Papers 94-04, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. Anil K. Kashyap & Jeremy C. Stein & David W. Wilcox, 1991. "Monetary policy and credit conditions: evidence from the composition of external finance," Finance and Economics Discussion Series 154, Board of Governors of the Federal Reserve System (U.S.).
  12. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
  13. Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
  14. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  15. Anil K Kashyap & Owen A. Lamont & Jeremy C. Stein, 1994. "Credit Conditions and the Cyclical Behavior of Inventories," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 565-592.
  16. Charles W. Calomiris, 1993. "Is the Discount Window Necessary? A Penn-Central Perspective," NBER Working Papers 4573, National Bureau of Economic Research, Inc.
  17. Mark Gertler & Simon Gilchrist, 1993. "The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence," Finance and Economics Discussion Series 93-5, Board of Governors of the Federal Reserve System (U.S.).
  18. Mark Gertler & Simon Gilchrist, 1991. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," NBER Working Papers 3892, National Bureau of Economic Research, Inc.
  19. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  20. Mitchell A. Post, 1992. "The evolution of the U.S. commercial paper market since 1980," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 879-891.
  21. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  22. Benjamin M. Friedman & Kenneth N. Kuttner, 1991. "Why Does the Paper-Bill Spread Predict Real Economic Activity?," NBER Working Papers 3879, National Bureau of Economic Research, Inc.
  23. Charles W. Calomiris & R. Glenn Hubbard & James H. Stock, 1986. "The Farm Debt Crisis and Public Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 441-486.
  24. Gorton, Gary & Pennacchi, George, 1990. " Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
  25. Davis, Lance E., 1960. "The New England Textile Mills and the Capital Markets: A Study of Industrial Borrowing 1840–1860," The Journal of Economic History, Cambridge University Press, vol. 20(01), pages 1-30, March.
  26. Thomas K. Hahn, 1993. "Commercial paper," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 45-67.
  27. Smith, Janet Kiholm & Schnucker, Christjahn, 1994. "An empirical examination of organizational structure: The economics of the factoring decision," Journal of Corporate Finance, Elsevier, vol. 1(1), pages 119-138, March.
  28. Calvin Schnure, 1994. "Debt maturity choice and risk-free assets: the "clientele effect" and the commercial paper market," Finance and Economics Discussion Series 94-4, Board of Governors of the Federal Reserve System (U.S.).
  29. Richard T. Selden, 1963. "Introduction to "Trends and Cycles in the Commercial Paper Market"," NBER Chapters, in: Trends and Cycles in the Commercial Paper Market, pages 1-5 National Bureau of Economic Research, Inc.
  30. Harris, Milton & Raviv, Artur, 1990. " Capital Structure and the Informational Role of Debt," Journal of Finance, American Finance Association, vol. 45(2), pages 321-349, June.
  31. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  32. Richard T. Selden, 1963. "Trends and Cycles in the Commercial Paper Market," NBER Books, National Bureau of Economic Research, Inc, number seld63-1.
  33. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  34. Booth, James R., 1992. "Contract costs, bank loans, and the cross-monitoring hypothesis," Journal of Financial Economics, Elsevier, vol. 31(1), pages 25-41.
  35. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
  36. Douglas W. Diamond, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 709-737.
  37. Evelyn M. Hurley, 1977. "The commercial paper market," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 525-536.
  38. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
  39. Martin H. Seiden, 1964. "The Quality of Trade Credit," NBER Books, National Bureau of Economic Research, Inc, number seid64-1.
  40. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle," Macroeconomics 9401001, EconWPA.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:crcspp:v:42:y:1995:i::p:203-250. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.