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

Abstract

In 2011, Colombia instituted a tax on repayment of bank loans, which increased the cost of short‐term bank credit more than long‐term credit. Firms responded by cutting short‐term loans for liquidity management purposes and increasing the use of cash and trade credit. In industries in which 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 provides an alternative source of liquidity that can insulate some firms from bank liquidity shocks.

Inventory investment and the choice of financing: Does financial development play a role?

“…We relate to this literature by focusing on Chinese firms' inventory investment, which can be financed either by bank loans or by trade credit (Restrepo et al, 2019).…”

“…Petersen and Rajain (1997) and Nilsen (2002) document that trade credit is typically more expensive than other sources of finance, mainly due to price discrimination. 4 We focus on short-term forms of financing (bank loans and trade credit), as these are typically used to finance working capital investment such as investment in inventories (Restrepo et al, 2019).…”

Sentiment‐dependent impact of funding liquidity shocks on futures market liquidity

“…The relationship, in specific, is generally negative, but it is positive under the extremely pessimistic sentiment, that is, when sentiment is below the 20th percentile. Previous studies suggest that the investment tendencies of particular institutions, such as banks, react significantly to funding liquidity shocks (Jylhä et al, 2014;Khan et al, 2017;Restrepo et al, 2019). Table 7 therefore further analyzes the responses of various types of domestic institutional investors: brokerage firms, insurance companies, investment management firms, banks, and pensions.…”

Earnings Indicators under the Condition of Globalization

“…It follows from the above that in the multiplicative linkages of agents their absolute differences are not symmetrical, it means:(5) Various methods are used for quantification. The best known include:[11,12,13]…”