Is Corporate Commercial Paper really special? Evidence from Liquidity Squeezes

This paper examines whether commercial paper is an indispensable source of debt financing for actively issuing corporations. Exploring financing and investment policy responses of commercial paper issuers around two recent liquidity squeezes in the paper market, I first show that firms mostly replace maturing short-term debt with longer-term debt instruments. Moreover, while the unavailability of commercial paper has no impact on long-term investment decisions, it is positively related to inventory levels. Despite the apparent ability to quickly replace paper with long-term debt, firms significantly reduce their inventories when commercial paper becomes scarce. Trade credit seems to be less responsive to commercial paper, and is partly financed by adjusting accounts payable.