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Firms as liquidity providers: Evidence from the 2007–2008 financial crisis

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  • Garcia-Appendini, Emilia
  • Montoriol-Garriga, Judit

Abstract

Using a supplier–client matched sample, we study the effect of the 2007–2008 financial crisis on between-firm liquidity provision. Consistent with a causal effect of a negative shock to bank credit, we find that firms with high precrisis liquidity levels increased the trade credit extended to other corporations and subsequently experienced better performance as compared with ex ante cash-poor firms. Trade credit taken by constrained firms increased during this period. These findings are consistent with firms providing liquidity insurance to their clients when bank credit is scarce and offer an important precautionary savings motive for accumulating cash reserves.

Suggested Citation

  • Garcia-Appendini, Emilia & Montoriol-Garriga, Judit, 2013. "Firms as liquidity providers: Evidence from the 2007–2008 financial crisis," Journal of Financial Economics, Elsevier, vol. 109(1), pages 272-291.
    • Handle: RePEc:eee:jfinec:v:109:y:2013:i:1:p:272-291
    DOI: 10.1016/j.jfineco.2013.02.010
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    Keywords

    Trade credit; Corporate liquidity; Crisis; Financial constraints; Liquidity;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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