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http://hdl.handle.net/10419/60707
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| Title: | | Bank commitment relationships, cash flow constraints, and liquidity management  |
| Authors: | | Morgan, Donald P. |
| Issue Date: | | 2000 |
| Series/Report no.: | | Staff Report, Federal Reserve Bank of New York 108 |
| Abstract: | | Evidence in this paper suggests that a close banking relationship -- a loan commitment in particularparticular, relax cash flow and cash management constraints on firms. Given firms’ prospects (Q), the investment and cash flow correlation is substantially lower when firms have a bank loan commitment. The difference in cash flow sensitivity reflects differences in firms’ cash management practices in the face of cash flow shocks. Firms with a commitment simply run down their stocks of cash (or borrow more) when their cash flow falls but their investment prospects remain strong. The different investment-cash flow sensitivities and cash management practices suggest that the firms with a bank commitment relationship are less financially constrained. |
| JEL: | | G21 G32 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Staff Reports, Federal Reserve Bank of New York
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