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

Emilia Garcia-Appendini, Judit Montoriol-Garriga

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    173 Citations (Scopus)

    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. © 2013 Elsevier B.V.
    Original languageEnglish
    Pages (from-to)272-291
    JournalJournal of Financial Economics
    Volume109
    Issue number1
    DOIs
    Publication statusPublished - 1 Jul 2013

    Keywords

    • Corporate liquidity
    • Crisis
    • Financial constraints
    • Liquidity
    • Trade credit

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