Dynamic corporate liquidity

Boris Nikolov, Lukas Schmid and Roberto Steri

Journal of Financial Economics, 2019, vol. 132, issue 1, 76-102

Abstract: In contrast to cash holdings, credit lines give firms financial flexibility by providing liquidity contingent on realized funding needs, but they are often limited by collateral and covenants. We embed this trade-off into an estimated dynamic model of financing and investment. Our model highlights the relevance of drawing down credit lines to fund investment options in an effective way and quantitatively matches well the levels and dynamics of cash, credit lines, and leverage. In the cross-section, modeling credit lines as contingent liquidity provides novel empirical predictions and rationalizes several stylized facts regarding credit line usage, covenant violations, and cash holdings.

Keywords: Cash; Credit lines; Collateral; Covenants; Structural estimation (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:132:y:2019:i:1:p:76-102

DOI: 10.1016/j.jfineco.2017.06.018

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