No abstract

This paper investigates the real effects of short-term financial constraints in the light of the working capital channel: cash credit constraints may force SMEs to forgo investment opportunities in order to finance their working capital needs. Building on unique indicators of cash and investment credit constraints derived from survey data, I find that: (1) shortterm credit constraints are as important as long-term ones in SMEs' investment decisions;(2) the detrimental effect of cash credit constraints on corporate investment is even stronger for firms with higher working capital needs; (3) the negative relationship between working capital and fixed investment is associated with short-term financial frictions; and (4) only liquid SMEs are able to offset short-term financial frictions by adjusting their accounts receivable and inventories.

Using a unique panel design that enables to control for bank, firm, market and loan heterogeneities, we confirm that relationship lenders charge higher rates in good times and lower rates in bad times. However, we show that risky single-bank firms do not benefit from this insurance mechanism and are "held-up" by relationship lenders. Local bank competition and higher non-bank finance dependence alleviate this informationmonopolistic behavior. Finally, long-term loans and small, non-trading-oriented and wellcapitalized banks drive the benefits of relationship lending.

Using a unique panel design that enables to control for bank, firm, market and loan heterogeneities, we confirm that relationship lenders charge higher rates in good times and lower rates in bad times. However, we show that risky single-bank firms do not benefit from this insurance mechanism and are "held-up" by relationship lenders. Local bank competition and higher non-bank finance dependence alleviate this informationmonopolistic behavior. Finally, long-term loans and small, non-trading-oriented and wellcapitalized banks drive the benefits of relationship lending.