During the fourth quarter of 2008, economists Murillo Campello, John Graham, and Campbell Harvey conducted a survey of CFOs to understand their reactions to the financial crisis. What they found is presented in their new working paper and summarized in this digest article. One highlight:
Constrained firms, on average, said they plan to cut employment by 11 percent, technology spending by 22 percent, capital investment by 9 percent, marketing by 33 percent, and dividends by 14 percent in 2009. Also, 13 percent of such firms tapped their lines of credit in order to have cash to meet expected needs, and another 17 percent did the same in case their banks shut off their credit. Few unconstrained firms report plans for significant cuts or concerns about the availability of credit during the period.
The subject of what role financial constraints play in real economic activity has a long history in economic research, dating back to this seminal paper on the sensitivity of investment to cash flows.