Anatomy of Corporate Borrowing Constraints*
By Chen Lian, Yueran Ma. Quarterly Journal of Economics, 2020
250 citations recorded by the source corpus.
Macro-finance analyses commonly link firms’ borrowing constraints to the liquidation value of physical assets. For U.S. nonfinancial firms, we show that 20% of debt by value is based on such assets (asset-based lending in creditor parlance), whereas 80% is based predominantly on cash flows from firms’ operations (cash flow–based lending). A standard borrowing constraint restricts total debt as a function of cash flows measured using operating earnings (earnings-based borrowing constraints). These features shape firm outcomes on the margin: first, cash flows in the form of operating earnings can directly relax borrowing constraints; second, firms are less vulnerable to collateral damage from asset price declines, and fire sale amplification may be mitigated. Taken together, our findings point to new venues for modeling firms’ borrowing constraints in macro-finance studies.
Subfields: Accounting, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/f88b4f48510d15bfef6b3a5fe7057b2075e97fa9
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Citations in the corpus
- The Rise of Finance Companies and FinTech Lenders in Small Business Lending (2020, background): “5Lian and Ma (2021) analyze the extent of asset-based borrowing versus cash-flow-based borrowing among large US non-financial firms.”
- Bank liquidity provision across the firm size distribution (2020, unknown): “In recent work, Lian and Ma (2020) argue for the primacy of cash-flow over asset-based lending for large firms.”
- Monetary Policy, Corporate Finance and Investment (2018, unknown): “o 1911 independent evidence on debt covenants by Lian and Ma (2018) who, following our demographic classification (but using the number of years since Initial Public Offering as proxy for age), show that among U.”