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Working Paper
Demand Shock, Liquidity Management, and Firm Growth during the Financial Crisis
We examine the transmission of liquidity across the supply chain during the 2007-09 financial crisis, a period of financial market illiquidity, for a sample of unrated public firms with differential demand shocks. We measure differential demand by comparing firms that primarily supply to government customers with those that primarily supply to corporate customers. A difference-in-difference analysis shows little evidence that relatively high demand firms provide more or less liquidity to their own suppliers. The main determinant of the usage of short-term financing is a product market shock. ...
Working Paper
Financing Repeat Borrowers: Designing Credible Incentives for Today and Tomorrow
We analyze relational contracts between a lender and borrower when borrower cash flows are not contractible and the costs of intermediation vary over time. Because lenders provide repayment incentives to borrowers through the continuation value of the lending relationship, borrowers will condition loan repayment on the likelihood of receiving loans in the future. Therefore, the borrower's beliefs about the lender's future liquidity and profitability become an important component of the borrower's repayment decision. Consequently, the possibility of high lending costs in the future weakens ...
Working Paper
Business to Business Credit to Small Firms
Following the financial crisis, total outstanding loans to businesses by commercial banks dropped off substantially. Large loans outstanding began to rebound by the third quarter of 2010 and essentially returned to their previous growth trajectory while small loans outstanding continued to decline. Anecdotal evidence suggests that firms used trade credit to smooth over cash flow problems. The current paper looks at recent trends in trade credit use by small businesses based on a recent poll done by the Credit Research Foundation. The results highlight the importance of business to business ...