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Title:Bank Lines of Credit in Liquidity Management - The Impact of Recall Risk for German SMEs PDF Logo
Authors:Schertler, Andrea
Pfingsten, Andreas
Hubensack, Carsten
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Cash Holding and Corporate Payout Policies G19-V3
Abstract:We use a unique sample of self-employed and corporate clients provided by a universal bank in Germany to investigate how recall risk of recallable bank lines of credit impact cash holdings and line usage. While the bank does not require an upfront fee for providing a line of credit, which may make these lines an effective tool in liquidity management, the bank has the right to recall the line upon short notice. Based on theoretical considerations, we postulate that clients with low recall risks have lower cash holdings and higher line usages than clients with moderate recall risks. In turn, the latter have higher cash holdings and lower line usage than clients with high recall risks, whose recall risk comes along with financial distress. Our findings indicate that the recall risk has a non-linear and non-monotonic effect on cash holdings and line usages and that this effect is not driven by other line characteristics.
Subjects:Bank line of credit
cash
liquidity management
recall risk
SME
JEL:G21
G31
G32
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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