Weathering Cash Flow Shocks

James R. Brown, Matthew T. Gustafson, Ivan T. Ivanov

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

Unexpectedly severe winter weather, which is arguably exogenous to firm and bank fundamentals, represents a significant cash flow shock for bank-borrowing firms. Firms respond to these shocks by drawing on and increasing the size of their credit lines. Banks charge borrowers for this liquidity via increased interest rates and less borrower-friendly loan provisions. Credit line adjustments occur within one calendar quarter of the shock and persist for at least nine months. Overall, we provide evidence that bank credit lines are an important tool for managing the nonfundamental component of cash flow volatility, especially for solvent, small bank borrowers.

Original languageEnglish (US)
Pages (from-to)1731-1772
Number of pages42
JournalJournal of Finance
Volume76
Issue number4
DOIs
StatePublished - Aug 2021

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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