The effects of banking market structure on corporate cash holdings and the value of cash

Shengfeng Li, Liang Han and Biao Mi

Journal of Empirical Finance, 2024, vol. 75, issue C

Abstract: We investigate the impact of the local banking market structure on the level of corporate cash holdings and the value of cash. We find that, in more concentrated banking markets, firms increase their cash holdings by issuing more equity. The marginal value of $1 cash increases by 10 cents with a one-standard-deviation increase in bank concentration. The positive relationship between bank concentration and value of cash is robust to a rich set of tests such as for firms having access to bond markets or firms using syndicated loans and is more prominent for more financially constrained firms. We also explore the mechanism, and our results suggest that in more concentrated banking markets firms demand more cash to shield against default risk.

Keywords: Banking market structure; Bank concentration; Supply of capital; Cash holdings; Value of cash; Default risk (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:75:y:2024:i:c:s0927539823001275

DOI: 10.1016/j.jempfin.2023.101460

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