 Cash policy and the bank-firm relationshipWeihan Cui, Ly Kim Cuong and Katsutoshi Shimizu Economic Modelling, 2020, vol. 91, issue C, 804-818 Abstract: Bank health affects a firm's cash holding - a healthy bank can result in either more (because of the influential bank power) or less (because of precautionary motive) firm-level cash holding. Motivated by the contrasting views in the existing literature, this paper investigates whether bank policy determines firm-level cash policy. Using Japanese firm-level data over 2000–2014, we find that the difference in bank health effects stems from the firm's investment status. We find that healthy banks induce growing firms to hold more cash while declining firms hold more cash when borrowing from unhealthy banks. Furthermore, we find that banks with more liquidity also induce their growing borrowers to have more cash. Our results are robust to the endogeneity of bank selection. Our study indicates that bank-firm relationship can serve as an advance-signalling device for a firm's shareholder-wealth-maximizing investments and contributes to the literature that explains the cash holding puzzle. Keywords: Cash policy; Bank-firm relationship; Financial constraint; Japanese banks; Bank capital; Bank liquidity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:91:y:2020:i:c:p:804-818 DOI: 10.1016/j.econmod.2020.04.015 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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