Credit supply constraints and financial policies of listed companies during the 2007–2009 financial crisis

Akbar, Saeed; Rehman, Shafiq ur; Liu, Jia; Shah, Syed Zulfiqar Ali

Abstract

© 2017 Elsevier B.V. This study examines the effects of lending constraints on the financial policies of UK publicly listed companies during the 2007–2009 financial crisis. Using a sample of 2039 publicly listed firms, the results of our analysis indicate that financial policies of firms are sensitive to variations in the supply of external finance and credit, suggesting that liquidity-constraint firms with low cash reserves suffered more at the time of the credit crunch. While managing through the potential negative effects of the financial crisis, majority of the sample companies increased the use of internal finance and deferred the payments of dividends which helped them apply effective financial policies during the crisis period. The findings of this study also document that during the crisis period, financial policies of firms were exposed to variations in the supply of finance and credit, which, by implication, posed a threat to their operations, sustainability and growth. Our findings produce awareness about the negative effects of the non-availability of external finance and credit supply to listed companies, and signify the role of different financing channels and credit system in the operations and growth of listed companies. These findings have implications for financial regulation and policy making in the UK.

Citation

Akbar, S., Rehman, S. U., Liu, J., & Shah, S. Z. A. (2017). Credit supply constraints and financial policies of listed companies during the 2007–2009 financial crisis. Research in international business and finance, 42, 559-571. https://doi.org/10.1016/j.ribaf.2017.07.001

• Journal Article Type: Article
• Acceptance Date: Jul 3, 2017
• Online Publication Date: Jul 8, 2017
• Publication Date: 2017-12
• Deposit Date: Sep 18, 2018
• Publicly Available Date: Jan 9, 2019
• Journal: Research in International Business and Finance
• Print ISSN: 0275-5319
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 42
• Pages: 559-571
• DOI: https://doi.org/10.1016/j.ribaf.2017.07.001
• Keywords: Financial crisis; Financial policies; Financial management; Total debt; Trade credit; Credit crunch
• Public URL: https://hull-repository.worktribe.com/output/519257
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0275531916304330
• Related Public URLs: http://usir.salford.ac.uk/43525/