Bermejo, Vicente J.Abad, José M.2015-12-182015-12-182015-072387-175Xhttps://hdl.handle.net/10016/22115We study the reaction of more than 60,000 firms to a large unexpected liquidity shock in Spain during a severe recessionary period. The Spanish central government repaid in 2012 almost 30bn euros (approximately 3% of GDP) of arrears that Territorial Administrations had been accumulating for years. We assess the economic impact of the plan using two alternative estimation strategies. First, we use a differences-in-differences (DID) approach that exploits heterogeneity in the size of the liquidity received by firms. Second, we take advantage of the plan's plausibly exogenous disbursement implementation and run a DID procedure using as control group some firms that were paid a year later. Overall, we find that a governmental liquidity injection during a recession increases corporate investment significantly: on average firms use 4% of cash transfers for investment. This effect is stronger for firms with lower default risk and higher investment opportunities. Firms with higher default risk are more prone to repay financial debt. On average, firms use 8% of cash transfers to repay financial debt.application/pdfengAtribución-NoComercial-SinDerivadas 3.0 EspañaLiquidityInvestmentDefault riskArrearsworking paperG31G32G38E51Economíaopen accessDT/0000001416wb1503