Bank commitment relationships, cash flow constraints, and liquidity management

Arbeitspapier

Evidence in this paper suggests that a close banking relationship - a loan commitment in particularparticular, relax cash flow and cash management constraints on firms. Given firms' prospects (Q), the investment and cash flow correlation is substantially lower when firms have a bank loan commitment. The difference in cash flow sensitivity reflects differences in firms' cash management practices in the face of cash flow shocks. Firms with a commitment simply run down their stocks of cash (or borrow more) when their cash flow falls but their investment prospects remain strong. The different investment-cash flow sensitivities and cash management practices suggest that the firms with a bank commitment relationship are less financially constrained.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 108

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Cash Management ; Betriebliche Liquidität ; Kredit ; Cash Flow ; Verarbeitendes Gewerbe ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Morgan, Donald P.
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/60707
• Last update: 10.03.2025, 11:41 AM CET