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The real effects of financial constraints: Evidence from a financial crisis

Publication ,  Journal Article
Campello, M; Graham, JR; Harvey, CR
Published in: Journal of Financial Economics
September 1, 2010

We survey 1,050 Chief Financial Officers (CFOs) in the U.S., Europe, and Asia to directly assess whether their firms are credit constrained during the global financial crisis of 2008. We study whether corporate spending plans differ conditional on this survey-based measure of financial constraint. Our evidence indicates that constrained firms planned deeper cuts in tech spending, employment, and capital spending. Constrained firms also burned through more cash, drew more heavily on lines of credit for fear banks would restrict access in the future, and sold more assets to fund their operations. We also find that the inability to borrow externally caused many firms to bypass attractive investment opportunities, with 86% of constrained U.S. CFOs saying their investment in attractive projects was restricted during the credit crisis of 2008. More than half of the respondents said they canceled or postponed their planned investments. Our results also hold in Europe and Asia, and in many cases are stronger in those economies. Our analysis adds to the portfolio of approaches and knowledge about the impact of credit constraints on real firm behavior. © 2010 Elsevier B.V.

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Published In

Journal of Financial Economics

DOI

ISSN

0304-405X

Publication Date

September 1, 2010

Volume

97

Issue

3

Start / End Page

470 / 487

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1606 Political Science
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
 

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Campello, M., Graham, J. R., & Harvey, C. R. (2010). The real effects of financial constraints: Evidence from a financial crisis. Journal of Financial Economics, 97(3), 470–487. https://doi.org/10.1016/j.jfineco.2010.02.009
Campello, M., J. R. Graham, and C. R. Harvey. “The real effects of financial constraints: Evidence from a financial crisis.” Journal of Financial Economics 97, no. 3 (September 1, 2010): 470–87. https://doi.org/10.1016/j.jfineco.2010.02.009.
Campello M, Graham JR, Harvey CR. The real effects of financial constraints: Evidence from a financial crisis. Journal of Financial Economics. 2010 Sep 1;97(3):470–87.
Campello, M., et al. “The real effects of financial constraints: Evidence from a financial crisis.” Journal of Financial Economics, vol. 97, no. 3, Sept. 2010, pp. 470–87. Scopus, doi:10.1016/j.jfineco.2010.02.009.
Campello M, Graham JR, Harvey CR. The real effects of financial constraints: Evidence from a financial crisis. Journal of Financial Economics. 2010 Sep 1;97(3):470–487.
Journal cover image

Published In

Journal of Financial Economics

DOI

ISSN

0304-405X

Publication Date

September 1, 2010

Volume

97

Issue

3

Start / End Page

470 / 487

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1606 Political Science
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics