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

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Listed author(s):
  • 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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File URL: http://www.sciencedirect.com/science/article/pii/S0304405X13000536
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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
DOI: 10.1016/j.jfineco.2013.02.010
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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