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The Real Effects of Credit Line Drawdowns

Author

Listed:
  • Jose M. Berrospide

    (Federal Reserve Board)

  • Ralf R. Meisenzahl

    (Federal Reserve Bank of Chicago)

Abstract

Using a unique data set of 470 public firms with credit lines, we study the purpose of drawdowns during the 2007–09 financial crisis. Our data show that credit line drawdowns had already increased in late 2007. Our results confirm that firms use drawdowns to sustain investment after an idiosyncratic liquidity shock. Using an instrumental-variable approach, we find that a one-standard-deviation increase in credit line drawdowns is associated with an increase of 12 percent in capital expenditures. During the financial crisis, this effect increased to 45 percent. We find only limited evidence that drawdowns were used to boost cash holdings.

Suggested Citation

  • Jose M. Berrospide & Ralf R. Meisenzahl, 2022. "The Real Effects of Credit Line Drawdowns," International Journal of Central Banking, International Journal of Central Banking, vol. 18(3), pages 321-397, September.
    • Handle: RePEc:ijc:ijcjou:y:2022:q:3:a:8
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G01 - Financial Economics - - General - - - Financial Crises
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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