September 2022 issue contents
The Real Effects of Credit Line Drawdowns

Jose M. Berrospidea and Ralf R. Meisenzahlb


Using a unique data set of 470 public firms with credit lines, we study the purpose of drawdowns during the 2007–09 financial crisis. Our data show that credit line drawdowns had already increased in late 2007. Our results confirm that firms use drawdowns to sustain investment after an idiosyncratic liquidity shock. Using an instrumental-variable approach, we find that a one-standard-deviation increase in credit line drawdowns is associated with an increase of 12 percent in capital expenditures. During the financial crisis, this effect increased to 45 percent. We find only limited evidence that drawdowns were used to boost cash holdings.

JEL Code: E22, G01, G31, G32.

Full article (PDF, 77 pages)

a  Federal Reserve Board
b  Federal Reserve Bank of Chicago