Bank liquidity supply and corporate investment during the 2008–2009 financial crisis

I use a novel identification strategy to examine whether bank liquidity supply affected corporate investment decisions during the 2008–2009 financial crisis. By exploiting the predetermined variation in the maturity structure of credit lines, I find that firms whose last pre-crisis credit lines were scheduled to mature at the time of the crisis significantly reduced investment relative to similar firms whose pre-crisis credit lines were not scheduled to expire. The results are robust to classifying firms based on the maturity profile of their pre-2006 credit lines and to controlling for the portion of long-term debt coming due in the crisis. Furthermore, this effect is concentrated among financially constrained firms, industries more dependent on external finance, or firms whose pre-crisis lenders were less healthy. Overall, the findings highlight the importance of credit line maturity in explaining investment outcomes during the crisis, consistent with the real effects of bank liquidity supply.