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Funding liquidity without banks: evidence from a shock to the cost of very short-term debt

Author

Listed:
  • Felipe Restrepo

    (Ivey Business School at Western University)

  • Lina Cardona-Sosa

    (Banco de la República de Colombia)

  • Philip E. Strahan

    (Boston College & NBER)

Abstract

In 2011, Colombia instituted a tax on repayment of bank loans, thereby increasing the cost of shortterm bank credit more than long-term credit. Firms responded by cutting their short-term loans for liquidity management purposes and increasing their use of cash and trade credit. In industries where trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit offers a substitute source of liquidity that can insulate some firms from bank liquidity shocks. **** RESUMEN: En 2011, Colombia incluyó los desembolsos a terceros dentro de la base gravable a los movimientos financieros (o 4x1000), incrementando así los costos de los créditos de muy corto plazo con relación a los de muy largo plazo. Las firmas respondieron con una disminución en los créditos de corto plazo para solventar problemas de liquidez y con un aumento en el uso del efectivo y las cuentas por pagar. En industrias en donde las cuentas por pagar son más comunes se encuentra una sustitución por las mismas con poco efecto en el efectivo o inversión. Caso contrario a lo observado en industrias con menos uso de las cuentas por pagar. Es así como las cuentas por pagar ofrecen una fuente de liquidez sustituta frente a choques a la provisión de liquidez de los bancos.

Suggested Citation

  • Felipe Restrepo & Lina Cardona-Sosa & Philip E. Strahan, 2018. "Funding liquidity without banks: evidence from a shock to the cost of very short-term debt," Borradores de Economia 1056, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:1056
    DOI: 10.32468/be.1056
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    2. Doojin Ryu & Jinyoung Yu, 2022. "Sentiment‐dependent impact of funding liquidity shocks on futures market liquidity," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(1), pages 61-76, January.
    3. Adelino, Manuel & Ferreira, Miguel & Giannetti, Mariassunta & Pires, Pedro, 2020. "Trade Credit and the Transmission of Unconventional Monetary Policy," CEPR Discussion Papers 14639, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    short-term credit; trade Credit; bank loans; liquidity; difference in differences; crédito de corto plazo; cuentas por pagar; préstamos bancarios; liquidez; diferencias en diferencias.;
    All these keywords.

    JEL classification:

    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing

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