Borrowing in Unsettled Times and Cash Holdings Afterwards

Masanori Orihara (), Yoshiaki Ogura and Yue Cai
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Masanori Orihara: University of Tsukuba
Yue Cai: Gakushuin University

No 2207, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: We find firms which successfully obtained a bank loan in a crisis reduced their cash holdings post-crisis, using Japanese data from the 2008 financial crisis. Firms received loans primarily from non-main banks. This substitution between borrowing and cash holdings applies to firms with an executive who had served as a CEO or financial officer in the crisis. This resulted in a substantial reduction in borrowing costs after the crisis. These findings are consistent with theories of relationship banking that managerial confidence in the availability of non-main bank loans reduces their precautionary cash holdings both to address a liquidity shortage and to mitigate a hold-up by their main bank. We also find that, in the post-crisis period, firms that obtained bank loans during the crisis spent more (over time and in comparison to other firms) on equity investments in their affiliates as well as on R&D among firms with pre-crisis R&D expenses.

Keywords: Financial Crisis; Cash Holdings; Relationship Banking; Hold-up Problem; Bank Consolidation (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 (search for similar items in EconPapers)
Pages: 78 pages
Date: 2022-11
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:wap:wpaper:2207

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