Funding Liquidity Without Banks: Evidence from a Shock to the Cost of Very Short-Term Debt

Authors

Felipe Restrepo, Ivey Business School
Lina Cardona-Sosa, Banco de la República
Philip E. Strahan, Boston College

Document Type

Article

Publication Date

3-2018

Journal

NBER Working Papers

URL with Digital Object Identifier

https://doi.org/10.3386/w23179

Abstract

In 2011, Colombia instituted a tax on repayment of bank loans, thereby increasing the cost of short-term bank credit more than long-term credit. Firms responded by cutting their short-term loans for liquidity management purposes and increasing their use of cash and trade credit. In industries where trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit offers a substitute source of liquidity that can insulate some firms from bank liquidity shocks.

Notes

The author accepted version of NBER Working Paper 23179.