cash reserves or bank lines of credit. Banks create liquidity for firms by pooling their idiosyncratic risks. As a result …, firms with high aggregate risk find it costly to get credit lines from banks and opt for cash reserves in spite of higher … have a higher ratio of cash reserves to lines of credit, controlling for other determinants of liquidity policy. This …

increases the incentive to create jobs. The transmission mechanism of 'credit shocks' is fundamentally different from the … typical credit channel and the model can explain why firms cut hiring after a credit contraction even if they have not …