| By: |
Catherine Fuss (National Bank of Belgium, Research Department);
Philip Vermeulen (ECB, DG Research) |
| Abstract: |
We test whether firms with a single bank are better shielded from loss of
credit and investment cuts in periods of adverse cash flow shocks than firms
with multiple bank relationships. Our estimates of the cash flow sensitivity
of investment show that both types of firms are equally subject to financing
constraints that bind only in the event of adverse cash flow shocks. In these
periods, firms incur lower cuts in investment expenditures when they can
obtain extra credit. In periods of adverse cash flow shocks, the probability
of obtaining extra bank debt becomes more sensitive to the size and leverage
of the firm. |
| Keywords: |
financial constraints, lending relationships, firm investment, firm financing |
| JEL: |
D92 |
| Date: |
2006–07 |
| URL: |
http://d.repec.org/n?u=RePEc:nbb:reswpp:200607-1&r=acc |