The Real Effects of Financial Constraints: Evidence from a Financial Crisis

Murillo Campello, John Graham and Campbell Harvey ()

No 15552, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G01 G31 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-ban and nep-sea
Note: CF IFM
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Citations: View citations in EconPapers (51)

Published as Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.

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Journal Article: The real effects of financial constraints: Evidence from a financial crisis (2010)
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