We examine the relation between the financial health of banks and their willingness to supply capital to borrowers under previously committed credit lines. We show that during the collapse of the Asset Backed Commercial Paper market in the last quarter of 2007 and the first half of 2008, banks...

This paper examines debt structure using a new and comprehensive database on types of debt employed by publicly listed U.S. firms. We find that specialization in a single debt type is a widespread phenomenon, and that the degree of specialization varies widely across different subsamples —...

We propose and test a theory of corporate liquidity management in which credit lines provided by banks to firms are a form of monitored liquidity insurance. Bank monitoring and resulting credit line revocations help control illiquidity-seeking behavior by firms. Firms with high liquidity risk...

We review the literature on debt structure, which is a central element in a firm's capital structure. We first survey both theoretical and empirical research pertaining to debt characteristics – maturity and priority – and debt types – bank loans, corporate bonds, credit lines, commercial...

Syndication gives originating banks the opportunity to diversify part of their credit risk by selling loans to other members of the syndicate. However, as originating banks are less exposed to risk, their incentives to monitor borrowers diminish. We explore this trade-off with a theoretical...

Default penalties are commonly observed in private equity funds. These penalties are levied on limited partners that miss out on a capital call. We show that default penalties are part of an optimal contract between limited and general partners. Default penalties help limited partners in...

We suggest a new mechanism–the liquidity insurance channel–based on the widespread reliance of high credit quality firms on bank credit lines for liquidity management. Our model matches the patterns of usage of loans and credit lines in the cross-section of firms, and defines the conditions...