Bank liquidity provision across the firm size distribution

We use supervisory loan-level data to document that small firms (SMEs) obtain shorter maturity credit lines than large firms, post more collateral, have higher utilization rates, and pay higher spreads. We rationalize these facts as the equilibrium outcome of a trade-off between lender commitment an...

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Bibliographic Details
Published in:Journal of financial economics Vol. 144; no. 3; pp. 908 - 932
Main Authors: Chodorow-Reich, Gabriel, Darmouni, Olivier, Luck, Stephan, Plosser, Matthew
Format: Journal Article
Language:English
Published: Amsterdam Elsevier B.V 01.06.2022
Elsevier Sequoia S.A
Subjects:
Bank liquidity
Bank loans
Companies
COVID recession
Financial economics
Firm size
Liquidity
Maturity
PPP
Size of enterprise
Small & medium sized enterprises-SME
Small business
PPP
Firm size
E44
H32
G21
G32
Bank liquidity
COVID recession
ISSN:0304-405X, 1879-2774
Online Access:Get full text
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Summary:We use supervisory loan-level data to document that small firms (SMEs) obtain shorter maturity credit lines than large firms, post more collateral, have higher utilization rates, and pay higher spreads. We rationalize these facts as the equilibrium outcome of a trade-off between lender commitment and discretion. Using the COVID recession, we test the prediction that SMEs are subject to greater lender discretion. Consistent with this hypothesis, SMEs did not draw down whereas large firms did, even in response to similar demand shocks. PPP recipients reduced non-PPP loan balances, indicating the program bolstered their liquidity and alleviated the shortfall.
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ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2021.06.035