Working Paper: CEPR ID: DP15073
Authors: Viral V. Acharya; Sascha Steffen
Abstract: Data on firm-loan-level daily credit line drawdowns in the United States reveals a corporate“dash for cash” induced by COVID-19. In the first phase of extreme precaution and heightenedaggregate risk, all firms drew down bank credit lines and raised cash levels. In the second phasefollowing the adoption of stabilization policies, only the highest-rated firms switched to capitalmarkets to raise cash. Consistent with the risk of becoming a fallen angel, the lowest-qualityBBB-rated firms behaved more similarly to non-investment grade firms. The observedcorporate behavior reveals the significant impact of credit risk on corporate cash holdings.
Keywords: liquidity; liquidity risk; cash holdings; bank lines of credit; pandemic
JEL Codes: G01; G14; G32; G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| COVID-19 (I15) | corporate cash holdings (G39) |
| heightened aggregate risk (D80) | bank credit line drawdowns (G21) |
| heightened aggregate risk (D80) | cash levels (E41) |
| credit risk (G21) | corporate cash holdings (G39) |
| lower ratings (G24) | dash-for-cash behavior (G40) |
| monetary and fiscal responses (E63) | stabilization effect (E63) |
| stabilization effect (E63) | access to capital markets (O16) |
| high-rated firms (G24) | bond and equity issuances (G12) |
| lower-rated firms (G32) | credit line drawdowns and term loans (G21) |
| ex-ante liquidity (E41) | stock market reaction (G10) |