Working Paper: NBER ID: w15552
Authors: Murillo Campello; John Graham; Campbell R. Harvey
Abstract: We survey 1,050 CFOs in the U.S., Europe, and Asia to assess whether their firms are credit constrained during the global credit crisis of 2008. We study whether corporate spending plans differ conditional on this measure of financial constraint. Our evidence indicates that constrained firms planned deeper cuts in tech spending, employment, and capital spending. Constrained firms also burned through more cash, drew more heavily on lines of credit for fear banks would restrict access in the future, and sold more assets to fund their operations. We also find that the inability to borrow externally causes many firms to bypass attractive investment opportunities, with 86% of constrained U.S. CFOs saying their investment in attractive projects was restricted during the credit crisis of 2008. More than half of the respondents say they will cancel or postpone their planned investment. Our results also hold in Europe and Asia, and in many cases are stronger in those economies.
Keywords: financial constraints; corporate behavior; investment decisions; credit crisis
JEL Codes: G01; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial constraints (H60) | corporate spending plans (G31) |
| financial constraints (H60) | investment decisions (G11) |
| financial constraints (H60) | liquidity management (G33) |
| constrained firms (D22) | deeper cuts in technology spending (H56) |
| constrained firms (D22) | deeper cuts in employment (J63) |
| constrained firms (D22) | deeper cuts in capital spending (H56) |
| financial constraints (H60) | reliance on lines of credit (G21) |
| financial constraints (H60) | difficulties in obtaining credit lines (G21) |
| financial constraints (H60) | higher propensity to sell assets (G32) |