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The response of firms\u2019 investment and financing to adverse cash flow shocks : the role of bank relationships

Author

Listed:
  • Catherine Fuss

    (National Bank of Belgium, Research Department)

  • Philip Vermeulen

    (ECB, DG Research)

Abstract

We test whether firms with a single bank are better shielded from loss of credit and investment cuts in periods of adverse cash flow shocks than firms with multiple bank relationships. Our estimates of the cash flow sensitivity of investment show that both types of firms are equally subject to financing constraints that bind only in the event of adverse cash flow shocks. In these periods, firms incur lower cuts in investment expenditures when they can obtain extra credit. In periods of adverse cash flow shocks, the probability of obtaining extra bank debt becomes more sensitive to the size and leverage of the firm.

Suggested Citation

  • Catherine Fuss & Philip Vermeulen, 2006. "The response of firms\u2019 investment and financing to adverse cash flow shocks : the role of bank relationships," Working Paper Research 87, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:200607-1
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    3. Alexander Karaivanov & Sonia Ruano & Jesús Saurina & Robert Townsend, 2010. "No bank, one bank, several banks: does it matter for investment?," Working Papers 1003, Banco de España.
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    6. F. De Sloover & K. Burggraeve & L. Dresse, 2012. "Belgian business investment in the context of the crisis," Economic Review, National Bank of Belgium, issue ii, pages 29-44, September.

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    More about this item

    Keywords

    financial constraints; lending relationships; firm investment; firm financing;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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