CEF.UP – WiP Seminar

Wednesday – June 18^th, 2025 at 13:00h | Room 305

Is liquidity theory important to study credit guarantees?

José Jorge – FEP – School of Economics and Management, University of Porto / CEF.UP.

Abstract:

“Is liquidity theory important to study credit guarantees? Yes. Credit guarantees are akin to the fully committed credit lines described in the theoretical literature. We thus apply this literature to propose and test a theory of credit guarantees, which work through the collateral channel (more generous guarantees increase the scale of the project) and through the liquidity channel (more generous guarantees increase the liquidity-scale ratio). The existing empirical literature has not found evidence of the former channel, and has neglected the latter. We find that an additional euro in a credit guarantee that backs 75% of a four-year bank loan increases liquidity holdings by 1.31 euros on average in a two-year window but has no clear impact on scale.”