The Working Capital Credit Multiplier

60 Pages Posted: 16 Nov 2017 Last revised: 12 May 2021

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Daniel R. Carvalho

Indiana University - Kelley School of Business

Taehyun Kim

Chung-Ang University

Date Written: May 5, 2021

Abstract

We propose and analyze a new mechanism through which financial frictions can affect firms’ operations and economic activity: the working capital credit multiplier. To isolate this multiplier, we develop an identification strategy that builds on cash flow seasonality and allows us to identify funding frictions in working capital without employing pure financial shocks. Our analysis provides evidence that some firms have limited capacity to fund working capital investments, which constraints their production capacity. This mechanism furthers our understanding of how funding frictions amplify and propagate the effects of economic shocks.

Keywords: financial accelerator, seasonality, funding frictions, accounts payable, short-term financial planning

JEL Classification: G31, G32, G38, E32

Suggested Citation

Almeida, Heitor and Carvalho, Daniel R. and Kim, Taehyun, The Working Capital Credit Multiplier (May 5, 2021). 29th Annual Conference on Financial Economics & Accounting 2018, Available at SSRN: https://ssrn.com/abstract=3071018 or http://dx.doi.org/10.2139/ssrn.3071018

Heitor Almeida (Contact Author)

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
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Champaign, IL 61820
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217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Daniel R. Carvalho

Indiana University - Kelley School of Business ( email )

Bloomington, IN 47405
United States

Taehyun Kim

Chung-Ang University ( email )

Heuksok-ro 84, Dongjak-gu
310-1108
Seiul, 06974
Korea, Republic of (South Korea)
8228205627 (Phone)

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