Liquidity Shortages and Firm-Level Responses: Quantified Narrative Evidence
Author: Stefan Pitschner (Universitat Pompeu Fabra)
Title: Liquidity Shortages and Firm-Level Responses: Quantified Narrative Evidence
Abstract: I search the texts of almost 1 million corporate reports to extract more than 1,000 discussions of firm-level liquidity shortages. I then quantify the contents of these discussions and link them back to the corresponding observables. This allows me to assess how firms react to liquidity shortages, establishing causality without the need for standard identifying assumptions or large exogenous shocks. My findings suggest that the most pronounced reactions occur in terms of real variables such as capital expenditures, research and development and size of the workforce. Financial policies such as share repurchases, equity pay and dividend adjustments, on the other hand, appear to be less important. I also explore how the responses vary over time, how they depend on the size of the cash shortfall, and how they vary across sectors.