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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.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 109 (2013)
Issue (Month): 1 ()
Pages: 272-291

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Handle: RePEc:eee:jfinec:v:109:y:2013:i:1:p:272-291
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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

Find related papers by 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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Cited by:

  1. Casey, Eddie & O'Toole, Conor M., 2014. "Bank lending constraints, trade credit and alternative financing during the financial crisis: Evidence from European SMEs," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 173-193.
  2. Andrea Filippo Presbitero & Gregory F. Udell & Alberto Zazzaro, 2012. "The Home Bias and the Credit Crunch: A Regional Perspective," Mo.Fi.R. Working Papers 60, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  3. Brown, Martin, 2013. "The transmission of banking crises to households : lessons from the 2008-2011 crises in the ECA region," Policy Research Working Paper Series 6528, The World Bank.
  4. Garcia-Appendini, Emilia & Montoriol-Garriga, Judit, 2014. "Trade Credit and Financial Distress," Working Papers on Finance 1411, University of St. Gallen, School of Finance.
  5. Federico Cingano & Francesco Manaresi & Enrico Sette, 2013. "Does credit crunch investments down? New evidence on the real effects of the bank-lending channel," Mo.Fi.R. Working Papers 91, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  6. Simona Mateut & Paul Mizen & Ydriss Ziane, . "No Going Back: How the Production Process Affects Access to Short-term Credit," Discussion Papers 12/14, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  7. Paul Ehling & David Haushalter, 2014. "When does cash matter? Evidence for private firms," Banco de Espa�a Working Papers 1412, Banco de Espa�a.

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