Publications
Publications
- 2024
- HBS Working Paper Series
Precautionary Debt Capacity
By: Deniz Aydin and Olivia S. Kim
Abstract
Firms with ample financial slack are unconstrained... or are they? In a field experiment
that randomly expands debt capacity on business credit lines, treated small-and-medium
enterprises (SMEs) draw down 35 cents on the dollar of expanded debt capacity in the
short-run and 55 cents in the long-run despite having debt levels far below their borrowing
limit before the intervention. SMEs direct new borrowing to financing investment
gradually over time and do not exhibit a measurable impact on delinquencies. Heterogeneity
analysis by the risk of being at the credit line limit supports the SME motive to
preserve financial flexibility.
Keywords
Citation
Aydin, Deniz, and Olivia S. Kim. "Precautionary Debt Capacity." Harvard Business School Working Paper, No. 24-053, February 2024.