7. Summary and conclusions
How do fluctuations in the availability of bank credit affect the way that firms manage their working capital, which is essential to their operations? Further, are these effects, if they exist, either larger or smaller for firms that are more dependent on their access to bank financing? Because bank financing has historically been a major source of financing of a firm’s working capital, these are important questions. We address these questions and in doing so, address two empirical issues. First, many prior studies of different working capital components scale their dependent variable in a way that it becomes a fractional variable. In which case, the estimation of a linear regression model for their conditional means is questionable given the arguments in Papke and Wooldridge (1996) and similar studies. Second, we address the fact that we do not directly observe the supply of bank credit. Using data on U.S. corporations from 2000 through 2016, we derive the following major conclusions. First, one derives different conclusions depending on whether one recognizes or not the doubly bounded nature of the dependent variables. Such evidence supports the statistical arguments in Papke and Wooldridge (1996) and others. Consequently, we base our subsequent evidence on their panel data quasi-likelihood model (Papke and Wooldridge (2008)).
