Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 422: Dynamic Credit Constraints: Theory and Evidence from Credit Lines
Niklas Amberg (), Tor Jacobson (), Vincenzo Quadrini () and Anna Rogantini Picco ()
Additional contact information
Niklas Amberg: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Tor Jacobson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Vincenzo Quadrini: University of Southern California, Marshall School of Business
Anna Rogantini Picco: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: We use a comprehensive Swedish credit register to document that firms throughout the size distribution have access to fairly large and reasonably priced credit lines, but borrow relatively little from them. We rationalize this using a theoretical framework in which the expected cost of financial distress increases with current borrowing and lower credit-line utilization reflects tighter ‘dynamic’ credit constraints. Consistently with the predictions of the model, the data shows that there is a negative relation between firm-level uncertainty and credit-line utilization. We also find that firms increase borrowing in response to credit-limit increases, even when their current debt is far from the limit.
Keywords: Credit constraints; banks; uncertainty; credit lines; precautionary behavior
Language: English
50 pages, March 1, 2023
Full text files
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