The Real Effects of Credit Line Drawdowns by Federal Reserve Board
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The Real Effects of Credit Line Drawdowns

The Real Effects of Credit Line Drawdowns


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About the Book

Do firms use credit line drawdowns to finance investment? Using a unique dataset of 467 Standard and Poors COMPUSTAT firms with credit lines, we study the purpose of drawdowns during the 2007-2009 financial crisis. Our data show that credit line drawdowns had already increased in 2007, precisely when disruptions in bank funding markets began to squeeze aggregate liquidity. Consistent with theory, our results confirm that firms use drawdowns to sustain investment after an idiosyncratic liquidity shock. Using an instrumental variable approach based on institutional features of credit line contracts, we find that a one standard deviation increase in credit line drawdown is associated with an increase of 9 percent in average capital expenditures. Low aggregate liquidity amplifies this effect significantly. During the Financial crisis, the effect of drawdowns on investment increased to 16 percent. The effect was even larger for smaller and financially constrained firms. We find only limited evidence, mostly for large and investment grade firms, that drawdowns were used to boost (precautionary) cash holdings during the crisis.


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Product Details
  • ISBN-13: 9781511467223
  • Publisher: Createspace Independent Publishing Platform
  • Publisher Imprint: Createspace Independent Publishing Platform
  • Height: 280 mm
  • No of Pages: 54
  • Series Title: English
  • Weight: 199 gr
  • ISBN-10: 1511467223
  • Publisher Date: 27 Mar 2015
  • Binding: Paperback
  • Language: English
  • Returnable: N
  • Spine Width: 3 mm
  • Width: 216 mm


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