This paper reviews empirical evidence on the use of bank lines of credit as a source of corporate liquidity …. Traditional explanation for lines of credit is that they provide insurance against liquidity shocks, in much the same as way … hoarding cash does. However, recent empirical research suggests that access to lines of credit is contingent on the credit …

newly binding credit constraints firms simply shrink their operations …

We find credit line drawdowns are an important source of long-term finance for capital expenditures and acquisitions … for all but the highest rated firms. Unrated and to a lesser extent intermediate-rated firms draw down credit lines most … frequently when capital market conditions are unfavorable. Firms repay long-term credit line drawdowns relatively quickly, with 2 …