European Central Bank researchers examined how large firms use credit lines and cash, testing the model’s resilience to changes in the distress cost curvature parameter. Figure B3 shows that firms with credit lines hold, on average, a sizable proportion of undrawn lines relative to assets, and that total liquidity (cash plus undrawn lines) differs across size percentiles. Raising the curvature from 1.1 to 1.2 produced borrowing limits that closely match the baseline, with a regression slope of 1.17 and R² = 0.70. Table D1 reports that real shocks explain 0.731 of credit utilization, while financial shocks account for 0.996 and 0.737 in two scenarios, indicating a stronger financial shock effect. The paper concludes that the model remains robust to curvature changes.
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Summary derived from the ECB website (https://www.ecb.europa.eu ).
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