Working Paper: NBER ID: w23179
Authors: Felipe Restrepo; Lina Cardona Sosa; Philip E. Strahan
Abstract: In 2011, Colombia instituted a tax on repayment of bank loans, thereby increasing the cost of short-term bank credit more than long-term credit. Firms responded by cutting their short-term loans for liquidity management purposes and increasing their use of cash and trade credit. In industries where 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 offers a substitute source of liquidity that can insulate some firms from bank liquidity shocks.
Keywords: No keywords provided
JEL Codes: G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2011 tax shock (H26) | decrease in use of short-term bank credit by large firms (G21) |
| 2011 tax shock (H26) | increase in trade credit and cash balances for firms (D25) |
| decrease in use of short-term bank credit by large firms (G21) | increase in trade credit (F19) |
| decrease in use of short-term bank credit by large firms (G21) | increase in cash balances (F32) |
| decline in bank liquidity (F65) | substitution of bank credit with trade credit (E51) |
| decline in bank liquidity (F65) | small and statistically insignificant effect on overall investment (G31) |
| increase in trade credit (F19) | mitigate impact of tax shock on investment decisions (H32) |